Show download pdf controls
  • Fonterra milk price support measures

    This page provides an overview of the tax implications of the Fonterra milk price reduction and support measures to assist milk suppliers in the 2016 and 2017 financial years.

    Milk price reduction

    Fonterra has announced they have reduced the full 2015–16 season farmgate milk price from $5.60 per kg of milk solid (kgMS) to $5.00 per kgMS.

    This means the May–June 2016 farmgate milk price will be $1.91 per kgMS.

    Suppliers will receive an additional $2.50 per kgMS in July–August 2016 based on the volume of milk supplied in May and June. This will be recouped in the 2016–17 year by reducing the farm-gate milk price for all suppliers by $0.19 per kgMS for the year.

    The extra $2.50 per kgMS will compensate Autumn calvers who supply a greater proportion of their milk in May and June. It is not payable to suppliers who left Fonterra before the payment was made.

    Support loan

    Fonterra will provide suppliers with the option to take up a loan of up to $0.60 per kgMS based on milk supplied in the 2015–16 season.

    You can repay the loan over three years, starting from the 2017–18 financial year.

    Fonterra will reduce the farmgate milk price by $0.02 per kgMS for all suppliers in the 2016–17 income year. This is to adjust for the interest costs on loans from the following year.

    This price reduction will also apply to suppliers who do not take up the support loan.

    Income tax

    If you are accounting on an accruals basis, amounts you received based on the 2016 farmgate milk prices of $5.60 per kgMS and $1.91 per kgMS are assessable in the 2015–16 income year.

    The additional amount you receive in July–August 2016 based on $2.50 per kgMS for May and June supply is assessable in the 2016–17 income year.

    If you are accounting on a cash basis, amounts are assessable in the year you receive them.

    If you take up the support loan, the loan amount is not assessable. Loan repayments are not deductible. You can deduct interest charged on the loan from the 2017–18 income year.

    The following example shows the effect of the price reduction and support measures on your income for the 2016 and 2017 years.

    Example: how the support measures affect your income*


    Quantity x rate (July-April)

    Quantity x rate (May-June)



    125,000 x $5.60

    25,000 x $1.91



    (125,000 x $(4.75 - 0.19 - 0.02)) + (25,000 x $2.50)

    25,000 x $(4.75 - 0.19 - 0.02)


    This example assumes a constant milk supply of 150,000 kgMS per annum spread evenly over the income year. The actual farmgate price (before reductions) will remain at $4.75 per kgMS for the rest of the 2016–17 year.

    *normal distributions are assumed to have been received in the income year of milk supply.

    Farm management deposits

    You cannot get early access to a farm management deposit (FMD) because of the farmgate milk price reduction. This means that if you need to withdraw an FMD within 12 months of it being deposited and you have already claimed a deduction for the deposit, you will need to seek an amendment to remove the deduction claimed.

    If you have not yet lodged the relevant return, do not claim a deduction for the deposit and do not include the withdrawal amount as income.


    You should account for goods and services tax (GST) in the usual way when you receive payments for your milk. That is, show the amount you received for your milk at label G1 and show an amount equal to one-eleventh of the amount you received at label 1A. You do not need to make any GST adjustments as a result of the reduced milk price and support measures.

    Varying PAYG instalments

    You can choose to vary your pay as you go (PAYG) instalments for the 2015–16 income year by varying your PAYG instalments on your activity statement.

    If you pay by way of the PAYG instalment amount notified by us, you may vary your 2015–16 Quarter 4 PAYG instalments for the reduced amount of income you received for that year.

    If you use the PAYG instalment rate method, you can also vary your rate if you think this will better match your year-end liability.

    If you do nothing, you will still receive a credit on your assessment and a refund of any excess PAYG instalment amounts. This will happen as a part of our normal return assessment process.

    You might consider varying your 2016–17 instalments to reflect the lower milk price you will likely be receiving.

    See also:

    Penalties for over-variation

    We may impose penalties if your variation is excessive – this is when there is a shortfall between your actual income tax liability and your varied PAYG instalment liability that is outside the relevant threshold.

    You will not receive a penalty if your variation is based on the reduced milk price you are to receive and a reasonable estimate of the volume you will supply.

    Next step:

    Help with managing your tax obligations

    If this situation is affecting your business and you can’t meet your tax payment obligations, we are offering supportive repayment arrangements and remission of interest where appropriate. Call us on 13 28 66 to discuss your situation.

    If you are a sole trader, and your debt is under $100,000, you can set up a payment plan using our online service. Alternatively, you can seek assistance from your registered tax agent.

    We encourage you to lodge your BAS (either yourself or through your registered agent) even if you can’t pay, so we can understand how much support you need. We can work out the payment terms with you later.

    See also:

      Last modified: 15 Aug 2016QC 49887