Introduced in 1999, Farm Management Deposits are seen to be an important part of risk management for primary producers. What are they and do they work? This article takes a close look at the Farm Management Deposits Scheme, some of the commonly asked questions and works through a case study to determine the answers.
In simple terms, the Farm Management Deposit (FMD) scheme is intended to allow Primary Producers the opportunity to shift “before-tax’ income to a later year where they may offset losses due to unfavourable climatic or market conditions. FMDs are considered an important risk management tool for the Primary Producer to ‘even out’ what could otherwise be extremely uneven income years.
The scheme works by allowing Primary Producers to claim an income tax deduction for an actual cash deposit into an FMD scheme in the year the deposit is made. As a result, this reduces the Primary Producer’s taxable income in the deposit year and hence any income tax payable on the deposit amount. In a later income year, when the Primary Producer’s income may be low due to a downturn in market or climatic conditions, the Primary Producer can apply to the FMD scheme for a withdrawal. The amount is then included in the Primary producer’s assessable income for that year and taxed accordingly.
The scheme is cash-flow driven; in a bountiful year, the surplus cash is deposited in a FMD held with a financial institution. In a lean year the cash is withdrawn from the FMD to assist the Primary Producer to pay for business expenses.
The owner of an FMD is a person on whose behalf the deposit is made. The owner must be a Primary Producer at the time the deposit is made. The owner cannot be a joint ownership or a Company but, rather, the scheme is restricted to ownership by individuals (including Partners in a Partnership). The only exception of this rule is where a Trustee is acting on behalf of a beneficiary who is presently entitled to a share of the income of a Trust estate, but is under legal disability (for example, a minor under the age of 18 years)
You must make your deposits with an FMD Provider that is an authorised deposit-taking institution or an entity that has a Commonwealth, State, Territory guarantee for deposits. This includes any bank, building society or credit union. You can make deposits with more than one of these institutions.
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Many key dates are looming for business including those relating to Activity Staterments, GST, Superannuation, Income Tax Returns, and more….
21 September August monthly Activity Statements – due for lodgement and payment.
30 September Annual TFN withholding report for closely held trust where a trustee has been required to withhold amounts from payments to beneficiaries during 2016/2017 – due for lodgement.
21 October September monthly Activity Statements – due for lodgement and payment.
28 October Final date for eligible quarterly GST reporters to elect to report GST annually.
28 October Due date for Superannuation Guarantee contributions for July-September to be made to employee funds.
31 October PAYG Withholding Where ANB Not Quoted – Annual Report – due date for lodgement. These amouns are also reported at W4 on your Activity Statement.
31 October Due date for 2016/2017 individual tax returns (unless you are lodging via a tax agent and are on their lodgement list by this date).
Where the due date falls on a weekend or public holiday, it is deferred until the next business day, (except in the case of Superannuation Guarantee deadlines).
The Government has just announced that it will introduce legislation into Parliament to clarify confusion around the applicable tax rate for companies.
By way of background, in recent times the Government has passed legislation to progressively reduce the company tax rate for companies with a turnover of up to $50 million as follows:
Company tax rate for entities under the threshold
Company tax rate for entities over the threshold
It appears that the Government’s intention in making these reductions was to encourage small to medium businesses to reinvest the tax savings in their business, and in turn promote employment and investment growth.
However, this intent became clouded recently when the ATO issued a draft Taxation Ruling in which it stated that, in its opinion, companies that were engaged in passive investments in shares and property could be seen to be carrying on a business, and thus eligible for the reduced company tax rate.
In response to this, the Government has stated that it will soon move to introduce legislation clarifying that only active trading companies qualify for the lower tax rate (and therefore not bucket companies or passive
Accordingly, if your company because of its turnover currently qualifies for the 27.5% tax rate and you are varying or otherwise calculating its PAYG Instalments, these should be calculated based on the reduced 27.5% tax rate only where the company is actively trading.
Bucket companies and companies that are solely engaged in passive investments in shares and property should operate (and calculate their PAYG Instalments) on the basis of the 30% rate applying; irrespective of the level of turnover.
With the end of financial year fast approaching, be mindful that Payment Summaries must be provided to employees by 14 July for 2016/2017. This date is not just a guideline but is actually stipulated by law (Section 16- 155 of the Tax Administration Act). Two of the most common errors made in preparing the Individual Non-Business Payment Summary for employees are:
- Misstating reportable employer superannuation contributions – ensure that you exclude Superannuation Guarantee amounts from this label. Salary sacrificed superannuation amounts must however be included.
This year there are special rules for Working Holiday Makers. A reduced tax rate applies for employers who registered with the ATO from 1 January 2017 — 15% up to $37,000 and 32.5% from $37,001. For registered Working Holiday Makers who worked both before and after 1 January 2017, two Payment Summaries must be issued, with the two different tax rates applying to the gross payments, depending upon the time of payment.
On the other hand, employers who did not register with the ATO for the reduced tax rate and continued to withhold at the foreign resident rate of 32.5% are required to issue the standard single Payment Summary per employee.
The Payment Summary for 2016/2017 includes a new section for overseas workers. In the Gross Payments Type box you must now indicate a type – this will be either S (salary), or H (registered Working Holiday Makers).