NSW Farmers has backed sensible reforms to the Farm Management Deposit (FMD) Scheme, calling for deposits to be held in the name of the legal working entity rather than individuals.
The policy proposal, adopted at the organisation’s annual conference earlier this year, aims to modernise the scheme to better reflect the way farm businesses operate today.
Andrew Martel, NSW Farmers Business, Economics and Trade Committee member and Wellington sheep producer, told the conference the system needed reform and argue the change would address practical challenges such as death, divorce, or partnership breakdowns.
“As you all know, the FMDs were set up to allow a tax free bulk of money to be set aside for a business, so that it was available in tough times.”
“One of the faults of this system, in my mind, was the fact that the money had to be devolved back to the individual partners or owner. This led to some problems,” Mr Martel said.
What are farm management deposits?
The Farm Management Deposit Scheme was introduced in 1999 to help primary producers smooth out their incomes and better cope with seasonal volatility – particularly drought. The system allows farmers to set aside pre-tax income in good years, which can later be withdrawn and taxed when needed, such as for restocking or replanting after droughts, floods or other shocks.
In simple terms, it allows farmers to even out their seasonal income across financial years, pay less tax – but also need less government support in times of drought or other hardship, a bit like a self insurance policy.
Nick Abraham, General Manager of Agribusiness at the Commonwealth Bank, said the scheme is accessible to all farmers, regardless of size.
“We both have smaller farmers using it and larger farmers. Of course, that’s all linked heavily to seasonal outcomes,” said Mr Abraham.
Income deposited into an FMD account is tax deductible in the financial year it is made, and becomes taxable income in the year it is withdrawn. Deposits must be held for at least 12 months to retain tax benefits, though exemptions apply for producers affected by natural disasters or severe drought.
“As the product has evolved and its use has evolved, most definitely we see a number of our clients take it out for a variety of reasons, whether it be whether it be drought or flood, so that flexibility definitely is there,” Mr Abrahams said.
Mr Abraham said FMDs work for a wide range of enterprises, from family-run operations to large-scale businesses, but are most commonly used by larger operations.
“I think it all comes down to cash flow. And you know, the smaller farmers may struggle to have sufficient cash flow to put money aside for the FMDs, whereas the larger farmers do,” he said.
Key FMD rules at a glance
- Maximum cap: Up to $800,000 in deposits per individual.
- Income test: Non-primary production income must be less than $100,000 in the year of deposit.
- Tax benefits: Deposits are tax deductible in the year made; withdrawals are taxable in the year taken out.
- Holding period: Must be held at least 12 months, unless affected by natural disaster or severe drought.
- Institutions: Deposits must be with an Authorised Deposit-taking Institution (bank, credit union, building society).
- Special access: Early withdrawal allowed for drought or Category C disaster recovery without losing tax benefits.
Billions already invested in FMDs
Eligibility settings include a maximum of $800,000 in deposits per individual, and rules that limit access for those with more than $100,000 in non-primary production income.
The scheme has proven popular with producers across the country, although a number of government reviews and audits have been critical of the programs success. As of July 2025, there were more than 41,000 FMD accounts nationally holding over $6.1 billion.
NSW producers account for 10,820 of these accounts with deposits totalling $1.43 billion, while Victoria holds $1.59 billion across 11,436 accounts. Queensland has 8,693 accounts with $1.45 billion deposited, and Western Australia 3,640 accounts worth $671 million.
The bulk of FMD holdings are concentrated in grain, beef, and mixed farming industries. Grain alone accounts for more than $1.25 billion, while beef producers hold over $1 billion and grain-sheep/beef enterprises about $1.39 billion.
However, all of that money is held in the name of individual farmers – not in the name of the farm business.
Changing the rules to fit modern farm businesses
The way the scheme is structured allows multiple farm owners to each have up to $800,000 in a farm management deposit in their name. So, if you have a husband and wife, two sons and a daughter-in-law all working the property, you could have up to $4m safely set aside to allow you to get through the next drought without needing to ask for help.
Unless of course one of those people left the farm, in which case the farm’s money went with them, because it is held in the individual’s name.
Additionally, both NSW Farmers and the National Farmers Federation (NFF) support widening the availability of FMDs to trusts and private companies, with an increasing number of farms having more corporate structures for a variety of reasons.
Mr Martel told the NSW Farmers Annual General Conference that changing the rules to allow FMDs to be held by the operating entity would fix a number of these serious flaws with the Scheme.
“In the case of the spouse or someone else in the partnership died, the money became immediately taxable.”
“If it was a highly profitable year, well, it was taxed at a high rate. It then went into the estate, and the whole effect of the keeping that money aside could well be lost.”
“Divorce also created another problem, and in that case, you had to try and get money back from a divorced partner,” Mr Martel said.
Given the frequency of marriage breakdowns under the strain of modern farming, it’s probably surprising this sensible reform hasn’t come about sooner. But Mr Martel said it was politics that sparked this idea: he started thinking about this reform because of concerns the Labor Party thought FMD’s were some kind of rort to avoid tax, rather than an essential tool for successful farmers to manage their affairs.
“The original concern of mine was that, years ago, it was rumoured that the Labor Party policy was to get rid of the whole FMD process because it was seen as tax avoidance.
“I think by removing it from individual holding money to a working entity of a business that’s got it there for a specific task, removes some of that scare,” said Mr Martel.
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