Farm Management Deposits can help farmers to smooth out their income – and now the cap is set to double to $800,000. Khan Horne, General Manager of NAB Agribusiness, and Simon Talbot, CEO of the National Farmers’ Federation, discuss the benefits and opportunities.

Farm Management Deposits (FMDs) can be a tax-effective way for farmers to build a reserve of cash to help them through a low-income year. At the end of 2015, a record $4.6 billion was being held in 48,487 FMD accounts – an increase of roughly $464 million over the year. The government has acknowledged that this uptake confirms the importance of FMDs and included improvements to the scheme in the recent Agricultural Competitiveness White Paper.

“One of the initiatives is doubling the limit on deposits to $800,000, which is a great outcome,” says Khan Horne,General Manager of NAB Agribusiness. “This will come into effect on July 1, 2016, and we believe it’s important to farmers’ ongoing financial viability. In agriculture, income fluctuations are inevitable due to natural disasters, an unpredictable climate and market variability. The increase will give farmers greater scope for managing these fluctuations. We’re working closely with our farmers to help them make the most of the opportunities.”

A different mindset

Simon Talbot, Chief Executive Officer of the National Farmers’ Federation, believes that FMDs are also helping to shift Australia’s approach to drought

“There is a growing awareness among both farming and mainstream communities that agriculture operates on a five-to-seven-year business cycle,” he says. “FMDs are all about preparedness, and I think this makes them an important risk management tool to help farmers manage fluctuations during the cycle.”

Benefits regarding tax and interest

Eligible primary producers can open an FMD account at any Authorised Deposit-taking Institution, which includes most banks and credit unions.

“In a good year you can deposit pre-tax income into your FDM account, so you have a cash buffer to draw on in leaner years,” says Horne. “The income is tax deductible in the year you make the deposit and doesn’t become part of your taxable income until you make a withdrawal.”

The money must be in the account for a minimum of 12 months for the tax benefits to apply except in certain exceptional circumstances. Interest rates vary from institution to institution.

“Many farmers are also taking advantage of using FMDs as a strategic risk management option,” says Horne.

Disclaimer: Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you independently consult with a registered tax agent.

More from NAB:

• Where are the opportunities for agribusiness in 2016?
• Organic wine industry matures nicely
• NAB Agribusiness Products