Farm Management Deposits: Smart Income Smoothing & Tax Planning

Farm Management Deposits: A Smart Tool for Income Smoothing and Tax Planning

Australia’s primary producers know that farming income rarely stays steady. Droughts, floods, commodity prices, and market shifts can all lead to large swings from one year to the next.
The Farm Management Deposit (FMD) scheme is a powerful tool that helps smooth out those ups and downs — both for tax and Centrelink purposes.

What Is a Farm Management Deposit (FMD)?

An FMD allows eligible primary producers to set aside pre-tax income in good years and withdraw it in low-income years.
The amount you deposit becomes a tax deduction in the year of deposit, and the amount you withdraw is included in your taxable income when it’s taken out.

This makes FMDs a valuable tool to:

• Reduce tax in strong years,
• Boost cash flow in lean years, and
• Smooth income for Centrelink benefits like Youth Allowance or Farm Household Allowance.

Key Rules and Eligibility

Who can use FMDs:
Only individuals carrying on a primary production business in Australia are eligible. (Companies, trusts, and partnerships themselves cannot hold FMDs, but individual partners can.)

Deposit limits:
Up to $800,000 per person (as at 2025).

Deposit conditions:

• Must be made from primary production income.
• Minimum deposit $1,000.
• Must be held for at least 12 months to retain the tax deduction (unless withdrawn due to exceptional circumstances such as drought or disaster).

Withdrawals:
Amounts withdrawn are assessable income in the year of withdrawal.

Example: How FMDs Smooth Income and Tax

Outcome: Income and tax obligations are stabilised across years — helping manage both taxation and Centrelink assessments more effectively.

Why FMDs Matter Beyond Tax

Centrelink assesses taxable income when determining eligibility for benefits like Youth Allowance, Family Tax Benefit, or Farm Household Allowance.

By strategically using FMDs, farmers can:

• Lower taxable income in a strong year, keeping within eligibility thresholds.
• Manage the impact of fluctuating profits on family benefits.
• Support youth allowance eligibility for children studying away from home.