Breaking the Tax Drought. (Tax and Law Australia)
Rigney, Harry, Journal of Banking and Financial Services
The dust was still blowing thick and red from the Australian hinterland into regions turned marginal by the one-in-a-hundred-years drought. But, in Federal Parliament, some valuable relief has materialised with the announcement of amendments to the tax laws governing Farm Management Desposits (FMDs).
The amendments, announced by Federal Agricultural Minister Warren Truss and Assistant Treasurer Helen Coonan, allows farmers in declared drought-affected areas to access any FMDs that are less than 12 months, while retaining the tax benefits that accrue after this period. Partial withdrawal of FMD monies is also permitted without affecting the benefits that accrue to the remaining money.
In another significant amendment, which applies across the board and not only to the declared drought-affected areas, any FMD product priced for less than 12 months will still be considered an FMD, provided that it is rolled over continuously for a 12 month period.
FMDs in a nutshell
The FMD Scheme is a risk management measure targeted at those who make their living from the land. It encourages primary producers to build up their cash reserves while times are good, to help better deal with income-affecting crises such as drought, as well as seasonal lulls in trade.
It is essentially a simple concept. Farmers stash away pre-tax income from their primary production activities during profitable periods, and draw upon it in low-income years, during rural downturns. While most farmers would undoubtedly try to do this already, the biggest draw-card of the funds held in accounts opened under the FMD Scheme do not get taxed.
Most banking institutions offer farm management deposit accounts. The basic rules are that the minimum deposit is $1000, the account must be held open for no fewer than 12 months, and the fund cannot exceed $300,000. To be eligible to open such an account, primary producers must meet three key criteria:
* They are carrying on an approved primary production business for the purposes of tax law;
* Their taxable non-farm (or `off-farm') income is less than $50,000; and
* They do not already have an FMD account open with another financial institution
FMD accounts are also free of bank charges and account service fees, and earn a comparatively effective rate of interest. …