John's Farm Management Deposit case study
John Moriarty* runs a grain growing business west of Tamworth, in NSW. Following a good April harvest, he estimated his taxable primary production income at $100,000 for that tax year. His non-primary production (i.e. off farm) income was less than $65,000.
After talking to his local Westpac Agribusiness Manager and a suitably qualified tax adviser in May, John opened a FMD for $50,000, locked in for 12 months. With all eligibility requirements met under Australian tax laws, John claimed the $50,000 FMD as a deduction for the tax year about to conclude.
Twelve months later in June, John estimated his taxable primary production income to be around $50,000. If he withdraw his FMD in the second year, he’d have additional income of $50,000, giving a total assessable income of $100,000.
John decided to roll over his FMD on a 6 monthly basis, giving him a little breathing space until he determined what to do with the deposit.
In May of the next year, and under the pressure of continuing drought, John decided he needed that FMD amount to meet his cash flow short fall. So he merely transferred the $50,000 FMD into his transaction account, which then formed part of his assessable primary production income for that tax year.
Over those 3 seasons John was able to successfully use a FMD to assist him in managing both his tax position and his cash flow.
Every season is different, as are individual financial goals. Once your FMDs have assisted you in your tax management, you may consider various options for using the funds, such as:
- Reducing debt
- Ongoing working capital
- A tax-effective investment into superannuation1.
Our Agribusiness Managers have access to a team of Agribusiness Financial Planners. Together we can work out a plan that will assist you in achieving your financial goals.
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Things you should know
- *Not a real person.
- 1This information does not take your financial circumstances into account. Read the Terms and Conditions before making a decision. The taxation position described is general in nature and should not be relied upon as a complete or definitive statement of the law and its application to your circumstances. It does not constitute tax advice and is based on Australian tax laws current as at 30 January 2010. By providing the example, Westpac is not intending to furnish tax or financial advice. Westpac recommends you obtain specific tax and financial advice on your own position from suitably qualified advisers before opening a FMD account. Westpac Financial Planners are not qualified to give tax advice.