The farm management deposit (FMD) scheme has operated since 2nd January 1999. The farm FMD scheme replaced the income equalization deposits (IED) and farm management bond (FMB).
Whilst there are many positives in accessing the greater limits, careful consideration needs to be given to the negative implications of individuals having a balance in FMDs excess of $400,000. The hardest impact is felt once an individual ceases to be a Primary Producer, as they are required to withdraw all FMDs within 120 days.
In the event of death of a Primary Producer, all FMDs are assessable in the Final Tax Return for the deceased taxpayer covering the period up to the date of death. For the older generation involved in the farm, care needs to be given to the level of balances held in FMDs. For example, if a balance in excess of $400,000 is to be included in the final return, the tax payable may end up being more than if the FMDs had been not used as a tax planning tool in the first place.
In many instances, the solution is to remain part of the farming operation and continue to receive a distribution of Primary Production income with FMDs withdrawn over time.
This enables a lower average rate of tax to be achieved on the FMD funds as they come out. For balances in excess of $400,000 this may take up to a decade or more to achieve.
You have some control over when you cease farming and other planning measures can be used to minimise income tax. You have no control over when you may leave this planet.
So how can we avoid the trap? The key word is PLANNING. Determining what the future may look like today,
tomorrow and ultimately the day you cease primary production. How long do I want to keep farming? Have we set goals and a
timeframe to maximise our retirement funds? Are their family plans for succession and what will that look like? These are all valid
questions and ones that can direct how you manage your FMD withdrawal.
If you have any questions please reach out to us on 07 4151 8898 or email at firstname.lastname@example.org.
Disclaimer: This content provides general information only, current at the time of production. Any advice in it has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material.
The Money Edge Pty Ltd, t/a The Money Edge is a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice (AFSL no. 322056) ABN 16 123 078 900 Level 14, 379 Collins Street, Melbourne, Victoria 3000.