The Farm Management Deposits (FMD) scheme is designed to reduce fluctuations in primary producers' incomes. Income can be deposited during prosperous years and withdrawn during less prosperous years. Subject to certain conditions, FMDs are deductible in the year in which they are made. If you withdraw FMDs that you have previously claimed as a tax deduction, the withdrawals are treated as assessable income in the year in which they are made. To retain the tax benefits of an FMD, generally the deposit should not be withdrawn in the first 12 months after it is deposited.
The basic rules of the scheme are:
- The deposit must be made with a financial institution such as a bank, building society or credit union.
- The owner of the deposit must be a primary producer when the deposit is made.
- The deposit must be made on behalf of only one person.
Deposits by two or more persons jointly or made on behalf of two or more persons will not be recognised as an FMD.
- FMDs must be made by 30 June to qualify for a deduction in that income year.
- The minimum deposit or withdrawal is $1,000; the total of all deposits held at any one time cannot exceed $300,000.
- Interest on FMDs is assessable in the income year in which it is paid.
- The tax deduction allowed for FMDs-including interest reinvested-in any income year is limited to the taxable income derived from a business of primary production in that year.
- You cannot claim a deduction for an FMD if in the income year:
- your taxable income from non-primary production activities is greater than $50,000
- you became bankrupt, or
- you ceased to be a primary producer for at least 120 days-the 120 day period does not have to fall entirely in the one income year.
Where a deposit holder dies in the income year, a deduction is not allowable for any FMD deposits they made in that income year.
The following changes have recently been made to the FMD scheme:
- FMDs no longer have to be a 12-month fixed term deposit but can be held in deposits of any term, provided no part of the amount is withdrawn within 12 months from the date of deposit. This applies retrospectively to deposits made on or after 2 January 1999.
- From 1 July 2002, you can withdraw part of an FMD within 12 months of making the deposit without losing the benefit of the tax deduction for the remaining amount. This residual amount still qualifies for an FMD deduction, provided it remains in the account for at least 12 months and does not fall below $1,000. A deduction is not allowable for the part of the deposit that is withdrawn. Where this affects a deduction you claimed in the prior year, you need to request an amendment of your assessment for that income year.
- From 1 July 2002, certain FMD holders can withdraw deposits early and still retain the tax deduction in the income year in which the deposit was made. This concession applies if, at the time of the withdrawal, you operate your primary production business in an area covered by an exceptional circumstances (EC) declaration made by the Minister for Agriculture, Fisheries and Forestry. To confirm your EC status, you have until three months after the end of the income year in which the withdrawal is made to obtain an EC certificate from the relevant state authority. This is to ensure that primary producers will be able to take advantage of the EC concession prior to the certificate being issued. The amount of the withdrawal is assessable in the income year in which the withdrawal is made, and you cannot claim a deduction for any subsequent deposits made in the same income year.
For more information on these changes, see the fact sheet Farm Management Deposit Scheme: Earlier access to farm management deposits.
FMDs are a commercial product offered by suitable financial institutions but coordinated by the Commonwealth Department of Agriculture, Fisheries and Forestry-Australia (AFFA). If you require more information on the taxation requirements for FMDs, contact the Business infoline on 13 28 66.