Farm management deposits: Farmers’ call to expand tax-saving scheme

Farm management deposits are a popular tool for managing drought risk – but thousands of farmers are still locked out from accessing the scheme. Could that be about to change?

Farm lobbies say more types of farm businesses should be able to put cash aside through the farm management deposit scheme.

Farm management deposits should be opened to all types of farm businesses including companies and trusts, farm lobbies say.

And primary producers should be able to earn more in off-farm income, such as carbon trading, without it affecting their eligibility for the tax-saving scheme, industry argued.

The proposed changes have been put forward as part of a Federal Government review into the program, as part of a wider evaluation of drought-resilience tools.

FMDs allow farmers to put aside up to $800,000 tax-free, which they can then draw down on in low-income years.

There are about 49,000 FMD accounts nationwide, holding about $5.3b and costing taxpayers about $215m in lost tax revenue. The Department of Agriculture, Water and Environment is examining whether it is helping farmers become more financially self-reliant during drought, or if it is just being used for tax purposes.

At present FMDs are only available to individuals; but GrainGrowers argues it should be expanded to all business types, with measures in place to ensure the scheme’s integrity is not abused.

“With trusts accounting for 32 per cent of structures in the grains sector, it is important that (the department) consider this position,” the lobby’s submission stated, noting a survey showed almost 50 per cent of its members did not use FMDs solely because their business structure prevented it.

GrainGrowers’ view was backed by the National Farmers’ Federation, Cotton Australia and CPA Australia, which argued the program’s eligibility requirements “do not necessarily fit well” with modern farm business structures.

According to NFF data, about 44 per cent of Australian agricultural businesses are partnerships, 33 per cent sole traders, 14 per cent trusts and 9 per cent corporates.

The NFF also called for an increase to the off-farm income threshold of $100,000, as it prevented farmers from using all risk management tools they could to prepare for drought.

“The creation of markets for environmental services, such as carbon and biodiversity offsets, and the increased incidence of farmers hosting renewable energy generation will likely make more farmers ineligible for the FMDs,” the NFF said.

The Department’s review into the scheme is expected to be considered by Agriculture Minister David Littleproud in coming weeks.

The FMD balance peaked at $6.76b in June 2019 before dropping to $5.3b this year, indicating farmers had been drawn down on the scheme as they recovered from drought.

However, the balance is expected to increase significantly for the 2020-21 financial year, following last year’s bumper grain harvest and good seasonal conditions.