Drought waiver arrangements for farm management deposit
Treasury has issued an exposure draft of new regulations reflecting changes to the Farm Management Deposit scheme and has called for submissions.A number of changes came into effect on July 1 including a doubling, to A$800,000, in the maximum amount that can be held in a farm management deposit account.Farm management deposits, which have been around since 1999, are designed to allow primary producers to smooth out their cash flows. They can set aside pre-tax income from primary production in years of high income.Deposits must be held for a minimum of 12 months and the income is taxable when money is withdrawn (it is assumed the tax rate will be lower if the money is withdrawn in a bad year).Other changes to the scheme that took effect on July 1 include a waiver allowing primary producers affected by severe drought to withdraw an amount that has been held in a deposit for less than 12 months without affecting the income tax treatment of the amount.And amounts held in farm management deposits will be available to offset a debt. This means that the amount on deposit will reduce the principal owing on a linked loan for the purpose of calculating interest.The debt must relate to the primary producer's business.The new regulations prescribe the types of natural disaster relief and recovery arrangements that would allow deposits to be withdrawn within 12 months without affecting income tax deductions.They also set out the information depositors must provide in their applications, providers must give to depositors and providers must give to the Agriculture Secretary.And they set out penalties that will apply where a deposit is applied to reduce interest on non-qualifying loans.