What is a Farm Management Deposit (FMD)?

What is an FMD? Now is a good time to find out, so here’s what you need to know about FMDs.

About Farm Management Deposits (FMD)?

A Farm Management Deposit or FMD is similar to a term deposit. You take your profits for the farm for the year and put them away in a deposit account that quarantines the money for a certain timeframe, such as 1 or 2 years. It’s a way for farmers to even out good and bad years by postponing the tax on one year’s profits.

There are even certain types of FMD account that allow your money to be “at-call”, so that you can withdraw part of the deposit if the farm should run into cash-flow troubles.

In a piece of recent good news, it has been announced that the maximum amount that can be held in a farm management deposit account will increase from A$400,000 to $800,000 on July 1, under government changes to the tax treatment of the scheme.

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What are the Tax Benefits of an FMD?

While your money is deposited in an FMD account, you don’t pay tax on that amount because it is not counted as taxable income. This means that if a farmer has a good year and makes a large profit, they can postpone paying tax on that profit until the next year, when they might be having a bad year profit-wise.

In this way, the farmer can even out their tax obligations and their finances, so that they don’t end up paying a huge tax bill one year and then facing financial hardship the next.

A farmer would make a Farm Management Deposit in June, in order to get the full tax benefit while still being able to use the money until then.

Why is a Good Time to Look at FMDs

Much like a term deposit, a Farm Management Deposit gives you a return in interest. So what interest rates can you earn on a Farm Management Deposit? In our table below we compare the rates for an FMD of up to $99,999. If you’re taking out an FMD for amounts over $100,000, you should be able to negotiate a rate with your bank!

1 Year Farm Management Term Deposit for $99,999
Date Min Average Max
23/05/2015 2.60% 2.89% 3.05%
23/05/2016 2.45% 2.87% 3.05%
Source: CANSTAR

Thankfully, as you can see, average rates on offer have gone down only slightly since last year, which is due to the recent cash rate cut. And the maximum interest rate you could earn has stayed the same.

What about the interest rates you could earn from a regular term deposit these days? In general, while the maximum interest rate you could earn is the same at the time of writing, the average and minimum rates are significantly lower than the rates for an FMD.

1 Year Personal Term Deposit for $99,999
Min Average Max
2.25% 2.70% 3.05%
Source: CANSTAR

Does your bank offer a Farm Management Deposit?

In 2016, CANSTAR has researched and rated 7 different providers of agribusiness solutions in Australia, and ANZ Bank has won our 2016 Award for Bank of the Year – Agribusiness. ANZ is one institution that offers Farm Management Deposits for farmers.

Does your bank measure up? Read the award report to find out.

 

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