The Australian Government proposes to introduce legislation into parliament in August 2016 to change Farm Management Deposits (FMD) to:
- Increase the FMD cap from $400,000 to $800,000
- Provide an early access trigger during times of drought
- Allow FMDs to be used as offset accounts against primary production business debt.
The early access trigger is achieved if a one in 20 year rainfall deficiency for 6 consecutive months immediately prior to the withdrawal can be demonstrated.
The FMD Offset account will only apply to primary producers who are sole traders or partners in partnership, so those that operate through trading trusts or companies will not be provided this concession.
“The changes, while positive, do not sufficiently accommodate the majority of primary production businesses that operate through trading trusts”, says Geoff Hall, director at RSM Australia.
“The legislation needed a mechanism to enable individual’s FMDs to be offset against farming trust losses (and also farming trust debt) to accommodate the vast number of farmers that operate through trading trust structures”.
“These proposed changes will be a challenge for those that operate through trading trusts. Farmers will now have to consider restructuring their trading entity if they wish to take full advantage of the FMD changes. At the same time, they have to consider the many advantages they may lose through restructuring in terms of asset protection, control and succession and other tax advantages…as well as the cost”
“This legislation falls short in that it delivers very well for some farmers but not for many other farmers, who under their current structure will be unable to utilise the FMD offset account or offset their FMD withdrawals against their trust entity losses,” added Mr Hall.