A $380-million-a-year government incentive that allows farmers to pay less tax will undergo a federal review.
- A tax-deferral scheme to help farmers manage their income will be reviewed by the federal government
- The Farm Management Deposits scheme costs taxpayers $380 million a year
- The review will consider if farmers have used scheme to become resilient, or “tax-plan”
The Farm Management Deposits scheme (FMD) allows farmers to set aside up to $800,000 of pre-tax income that can be drawn down in low-income years, such as during drought.
It defers, and in some instances reduces, tax owed and acknowledges that cash flow for primary producers can fluctuate greatly.
The Department of Agriculture Water and Environment will oversee the review and must consider whether the FMD scheme has helped farmers to become resilient or has been used simply for “tax planning”.
Agriculture Minister David Littleproud said the review of the FMD scheme was part of a wider evaluation of the federal government’s drought response and suggested it could find the scheme needed to be “amplified,” potentially at the expense of other government-funded drought programs.
“Do we need to look at some of the other programs and simplify our drought response to amplify up farm management deposits and maintain Farm Household Allowance and the Regional Investment Corporation?
“Those are things we want to look at. If we can do it better, we should change it.”
The review is due to the government by mid-year and will be the sixth federal review to consider the scheme since 2006.
Farm Management Deposits hold $5.3 billion
After years of widespread drought across large parts of Australia, by June 2020, $6.5 billion was held in more than 49,000 FMD accounts.
By January 2021, it had been drawn down to $5.3 billion.
This year the Australian agriculture industry is expected to be worth a record $66 billion, with the average farm income forecast to be $184,000.
The National Farmers’ Federation said the FMD scheme was a “vital risk management tool” and has called for as many farmers as possible to participate in the review.
“Measures to build resilience and support farmers during drought need to be evaluated for their effectiveness,” NFF chief executive Tony Mahar said.
The inquiry’s terms of reference state that the review must provide advice to the government on the extent to which the FMD scheme helped primary producers become self-reliant “as opposed to being utilised for other purposes such as tax planning”.
The inquiry will not consider expanding the FMD scheme to other business structures, such as companies, nor increasing the deposit threshold from $800,000.
The FMD scheme was first introduced in 1999 and is administered by the Department of Agriculture Water and Environment, the Australian Tax Office and the Department of Treasury.
The deposit cap was raised from $400,000 to $800,000 following a recommendation in the 2015 Agricultural Competitiveness White Paper, championed by the former agriculture minister Barnaby Joyce.