Work out how to deal with uneven income flows during prosperous years and less prosperous years.
The farm management deposits (FMD) scheme is designed to enable primary producers to deal with uneven income flows by making deposits during prosperous years and receiving repayments during less prosperous years.
Farm management deposit accounts are commercial products offered by financial institutions and coordinated by the Australian Government Department of Agriculture, Fisheries and Forestry.
Subject to certain conditions, you can deduct FMDs in the year in which you make them. If any FMDs that you have previously claimed as a tax deduction are repaid, the repayments are treated as assessable income in the year in which they are made.
The following repayments are not assessable income:
- reinvested deposits, or extensions of the term of deposits, with the same FMD provider
- merged deposits, provided certain conditions are met
- transfers of the same deposit amount from one FMD provider to another, such as
- electronic transfers from a liquidated authorised deposit-taking institution (ADI) to a new ADI
- transfers by the Australian Prudential Regulatory Authority under the Financial Claims Scheme.
The basic rules of the FMD scheme for 2022–23 are:
- the deposit must be made with an FMD provider
- 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 2 or more persons jointly, or made on behalf of 2 or more persons, are not recognised as FMDs)
- deposits must be made by 30 June 2023 to qualify for a deduction in 2022–23
- the minimum deposit or repayment is $1,000 and the total of all deposits held at any one time cannot exceed $800,000
- interest on FMD is assessable as income in the income year in which it is paid
- the tax deduction allowed for FMD in any income year is limited to the taxable income derived from a business of primary production in that year
- the amount held in an FMD can be used in an interest offset arrangement (that is, used to reduce the interest payable) on a loan or other debt of the FMD owner relating to the owner's primary production business.
You can hold FMDs with more than one FMD provider. You will need to account for all of your deposits when completing your income tax return and ensure that they do not exceed $800,000.
You cannot claim a deduction for FMDs in 2022–23 if:
- your taxable non-primary production income for 2022–23 exceeded $100,000
- you became bankrupt during 2022–23, or
- after you made the deposit in 2022–23, you stopped carrying on a primary production business and did not start such a business again within 120 days.
Where a deposit holder died in 2022–23, a deduction is not allowable for any deposits they made in 2022–23.
FMDs do not have to be 12-month fixed term deposits. They can be held in deposits of any term, provided no part of the amount is repaid within 12 months of the date of deposit.
You can withdraw part of a deposit within 12 months of making the deposit without losing the benefit of the tax deduction for the remaining amount. This remaining amount still qualifies for an FMD deduction, provided:
- it remains in the account for at least 12 months, and
- it does not fall below $1,000.
A deduction is not allowable for the part of the deposit that is repaid.
If you claimed a deduction in 2021–22 for that part of the deposit that is repaid, you need to request an amendment of your assessment for 2021–22.
If you were affected by a natural disaster in 2022–23, you can access your FMDs within 12 months of making those deposits, without having to cancel your tax deduction. To be eligible in 2022–23, you must meet all of the following requirements. You must have:
- made a relevant deposit before the relevant natural disaster
- received Category C assistance under the Natural Disaster Relief and Recovery Arrangements in the form of a recovery grant for primary producers
- received the first allocation of the recovery grant during the 12-month period after the day in which the deposit was made
- withdrawn the funds from the FMD account after the recovery grant was first provided.
You must keep proof that you received the disaster assistance with your tax records.
You can access your deposits early, without losing your concessional tax treatment, if you are eligible to claim the drought exception. You are able to claim this exemption if:
- for 6 consecutive months an area of your primary production property has been affected by rainfall that is within the lowest 5% of recorded rainfall for that area of your property
- publicly available rainfall records held by the Bureau of Meteorology confirm this low rainfall for the period of 6 months preceding the month in which the repayment is made, and
- for that 6-month period
- you held the deposit
- you are not involved solely in primary production industries like fishing, pearling, tree felling or tree transporting.
You can determine if your primary production property meets the rainfall requirements at a particular time by using the FMD rainfall analyserExternal Link on the Department of Agriculture, Fisheries and Forestry website.
To obtain your concessional tax treatment, you need to ensure that any repayment of your deposit occurs before the end of the month immediately following that 6-month drought period.
If you claim the exception, you cannot claim a deduction for deposits you made in 2022–23 after the early repayment.
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