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.
Subject to certain conditions, deposits are deductible in the year in which they are made. If any deposits 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. Amounts that are repaid within 12 months of deposit do not receive concessional treatment unless the repayment is due to a natural disaster (see below).
The following repayments are not assessable:
- reinvested deposits, or extensions of the term of deposits with the same provider
- merged deposits, provided certain conditions are met
- transfers of the same deposit amount from one FMD provider to another, examples of which include
- 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 scheme 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 two or more persons jointly, or made on behalf of two or more persons, are not recognised as FMDs.)
- Deposits must be made by 30 June to qualify for a deduction in that income year.
- The minimum deposit or repayment is $1,000 and the total of all deposits held at any one time cannot exceed $400,000.
- Interest on FMD is assessable 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.
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 you do not exceed the maximum $400,000 deposit cap (for all deposits).
- You cannot claim a deduction for FMD if in the income year
- your taxable non-primary production income for the financial year exceeds $100,000
- you become bankrupt during the year, or
- before the end of the year you cease to carry on a primary production business for 120 days or more.
- Where a deposit holder dies in the income year, a deduction is not allowable for any deposits they made in that income year.
- FMDs do not have to be 12-month fixed term deposits but 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 repay part of a deposit 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 repaid. Where this affects a deduction you claimed in the prior year, you need to request an amendment of your assessment for that income year.
FMDs and natural disasters
Eligible primary producersExternal Link affected by natural disasters can withdraw their FMDs within the first 12 months of deposit without losing their taxation benefits if they are currently accessing, or have accessed, the Category C recovery assistance under the Natural Disaster Relief and Recovery Arrangements.
To be eligible, primary producers must:
- be affected by certain natural disasters, and on or after 1 July 2010, have received Category C assistance under the Natural Disaster Relief and Recovery Arrangements in the form of a recovery grant for primary producers
- have received the first allocation of the recovery grant during the 12 month period after the day in which the deposit was made
- have withdrawn the funds from the FMD account after the recovery grant was first provided.
In the above circumstances, eligible primary producers remain entitled to an FMD deduction for the amount that they deposited then subsequently withdrew, within 12 months of making the deposit. The amount of that withdrawal becomes part of the primary producer’s taxable income in the financial year that they withdraw the FMD.
If a primary producer withdraws their FMDs early in the circumstances described above, any later deposits made in the income year in which the withdrawals were made are not FMDs.
If you access your FMD in the year after you claimed the deduction, you do not need to lodge an amendment but should include the repayment as assessable income in the current year.
You will need to retain proof that you received the relevant disaster assistance as part of your tax records.
For information on early access to FMDs as a result of natural disaster, including eligibility requirements, see the Department of AgricultureExternal Link
For more information about how to complete your tax return, go to ato.gov.au and search for ‘Farm Management Deposits’.
Farm management deposit accounts are commercial products offered by financial institutions but coordinated by the Australian Government Department of Agriculture. For more information on the taxation requirements for the FMD scheme, go to Farm management deposits scheme.