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FMDs or Super?

Farmers often ask us if they should put money into farm management deposits “FMDs” or into superannuation. The short answer is, it depends on what you are trying to achieve… But there are a few strategies now that will improve what farmers can do in the future.

The FMD scheme is a way primary producers can deal with uneven cash flows. Uneven income is quite common in primary production due to things like market variables and the weather/rain. Farmers can hold up to $800k (assuming eligibility) per person into FMDs and not pay income tax until they take it out. A recent change is that the government will now allow farmers to use FMDs to offset any farm loans. This can save quite a bit of interest.

FMDs Example:

Thomas & Sally have an outstanding year and sell a lot of cattle and income is $1.8m. They know the future years will not be this good, so they put $1.6m into FMDs $800k each and then their taxable income is $100k each.

Another legal way for people to reduce the tax they pay is through superannuation. Super is just a tax effective vehicle to save for your retirement. Once money is in the superannuation environment, it gets invested into shares/property/cash/primary production land. Depending of course on what your risk tolerance, time line for investing and preferences are. It is your money after all. You then cannot access until you have reached your preservation age and retire or if you get to 65 even if you haven’t retired. Your preservation age will depend on when you are born – find out here.

Depending on how you manage your cash flow and if you carry any debt on the farm. Or if you have any debt reduction or farm expansion plans. We would normally recommend clients start contributing at least something small into super. So that they can benefit from compound interest over time.

In the above scenario Thomas and Sally could deposit $15k each into super and their taxable income would reduce to $85k each.

One positive rule change that is occurring is the introduction of catch-up concessional contributions from July 2018. So, if your super balance is below $500k and you have not used your total concessional contributions cap for the last few years, you can carry them forward and make a larger tax-deductible contribution to super.


As always, the above is only general information. If you would like to chat to someone about your personal situation you can book an appointment at our offices in Adelaide, Broken Hill or via Skype.

We also have a free e-book relating to retirement planning you can access by clicking here.