Farm management deposits drawdown sign of tough times

The national balance held in farm management deposits has dropped, signalling that farmers are using the scheme to ease financial strain.

The national farm management deposits scheme is working as it should, according to NAB.

AFTER four years of steady growth, the national balance held in farm management deposits has dropped to $5.37 billion, with farmers across the eastern states withdrawing $36 million in the first quarter of this year.

“Many producers have faced prolonged periods of drought, and associated record water and feed grain prices,” said NAB agribusiness customer executive Neil Findlay.

“The current FMD drawdown, while significant in terms of dollar value, is not surprising when you look at this broader context.

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“FMDs are designed to allow producers to set aside pre-tax income in the good years, which is then available for use in the tougher times.”

With total FMDs nearly equal to the level at the same time last year, the scheme is working as it should, according to NAB.

FMDs are designed to help primary producers deal with uneven income flows by giving concessional tax treatment to deposits.

Deposits can be withdrawn in challenging years when markets, seasons or other fluctuations adversely affect cash flow.

Data from NAB and the Department of Agriculture showed that the national balance held in farm management deposits peaked at $6.6 billion last June.

In January this year, NAB customers in drought-affected areas withdrew $9.6 million from FMDs, which was almost triple the rate of withdrawals by NAB customers in non-drought areas.

Farmers in NSW drew down $17 million from FMDs in the first quarter of this year.

Drought- and flood-hit Queensland producers drew down $14 million and Victorian farmers $4 million.

In contrast, farmers in Western Australia had a bumper grain harvest last year and recorded a $6 million increase in FMD balance in the first quarter.

“The drought has been significant, but it’s encouraging to see that drawdowns have only been a small percentage of the total balance held, even in drought-impacted areas,” Mr Findlay said.

“This suggests that many producers are saving their FMD reserves for a rainy day, to fund restocking or planting when the drought breaks. The FMD scheme is working, and it is a real positive for our industry.”

Mr Findlay predicted there would be fewer deposits next month and a larger drawdown at the beginning of the new financial year.

A deduction can be claimed for any deposit amount of $1000 or more, and any amount withdrawn from an FMD is included in assessable income in that year.

To access the benefits of farm management deposits, producers must be an individual, partner in partnership or beneficiary of a trust; have no more than $100,000 taxable non-primary production income in the year of a deposit and hold no more than $800,000 in FMDs.

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