The Farm Management Deposits (FMD) Scheme is designed to assist primary producers deal more effectively with fluctuations in their cash flows. The policy intent of the Scheme, which was established in 1999, is to encourage increased financial self-reliance among primary producers by allowing them to set aside cash reserves earned during high-income years, for use in low-income years.
Under the Scheme, primary producers are able to defer — and potentially reduce — their income tax liability for eligible amounts deposited into specific FMD accounts at authorised deposit-taking institutions. Deposits that qualify as ‘deductible’ reduce a primary producer’s taxable primary production income in the year they are made, while amounts withdrawn from FMDs are to be included in assessable income in the year of withdrawal.
On 1 July 2016, three policy changes were introduced to the FMD Scheme as part of the Government’s Agricultural Competitiveness White Paper:
- the deposit limit for FMDs, for each FMD holder, was increased from $400,000 to $800,000;
- primary producers experiencing severe drought conditions can now access FMDs within 12 months of deposit without losing their claimed tax concession; and
- FMDs can now be used to offset a loan or other debt relating to the holder’s primary production business.
Three entities are responsible for the FMD Scheme: the Department of Agriculture (Agriculture); the Australian Taxation Office (ATO); and the Department of the Treasury (Treasury). Agriculture is the policy owner of the FMD Scheme; the ATO is responsible for administering the tax legislation; and Treasury is responsible for tax policy and for preparing tax expenditure estimates.
The audit was undertaken to provide assurance on whether a key measure delivering tax relief for primary producers is being administered effectively. The audit was also undertaken in light of the steep increase in the estimate of revenue forgone for the FMD Scheme in 2017–18 and the broader scope of the Scheme following the 2016 policy changes.