Farm Management Deposits reached a record high across Australia in June last year when the total exceeded $3.5 billion for the first time.

June has traditonally been the biggest month of the year for deposits as farmers look to take advantage of tax benefits prior to the end of each financial year, and rural finance specialists expect to see a similar trend this year as well.

National Australia Bank (NAB) general manager of Agribusiness Khan Horne said FMDs offered an effective way for primary producers to manage cash flows and income fluctuations through good seasons and more challenging ones. 

?By putting excess cash away in good times, farmers are then able to bring that cash back into the business when it is needed.

?Deposits are deductible in the income year in which they are made, and FMDs have to be in place for 12 months to receive the full tax benefits. 

Mr Khan said farmers should consider making regular, smaller deposits if they have excess cashflow through the year to provide more opportunities to make withdrawals when they need the cash.

?This in turn will reduce farm financing costs by reducing the pressure on overdrafts and other short term loans.

Businesses that already have money put away in FMDs can also consider re-distributing funds into superannuation. This was a valuable option for those who have had some good seasons and may have reached the maximum limit for FMDs of $400,000.

They can then continue to utilise FMDs as a short-term tax and cashflow funding tool as cashflow surpluses and operating profits permit.?

The Federal Government recently announced changes to the FMD scheme, increasing the non-primary production income threshold from $65,000 to $100,000. This would enable more farmers to utilise FMDs. The changes also allow the consolidation of existing eligible FMD accounts, and are anticipated to take effect from 1 July 2014.