Australian farmers have more money stashed away in special savings accounts designed exclusively for farmers, than ever before.

Farm Management Deposits (FMD's) are cash reserves that serve as an important buffer against drought, failed crops and other bad times. They are also a crucial savings base for farmers with plans to expand or invest in new infrastructure, machinery or stock.

The June figure of $4.6 billion, held between 48,487 farmers, is almost $500 million higher than the same time 12 months ago. This increase can largely be attributed to those farmers who were able to capitalise on the surge in commodity prices.

Changes to the scheme, which come into effect in July 2016, could lure more money into FMDs.The changes include an increase in the cap on funds allowed to be held in an individual account, which will double to $800,000, and legislative changes that will allow FMD account funds to be used to offset a loan.

Brent Finlay, president of the National Farmers Federation, said farm management deposits were "such an important instrument" for "They're putting it away for the day when it doesn't rain ... or a day when they need access to funds, whether that's changing their production systems or modifying production systems," he said. "So it's
all the things that farmers need large amounts of capital for, it could be for when times are tough.

The FMD scheme was introduced in 1999 by the then Howard government. Under the scheme's rules, farmers can bank pre-tax farm income in seasons when returns are strong. These savings can be called upon in years when earnings are weaker.

Income deposited into one of these accounts is tax deductible in the financial year the deposit is made; it is treated as taxable income in the financial year it is pulled out.

If you would like more information on how FMD's may be of benefit to you, please contact Cos Schuh at cos@schuhgroup.com.au.

(Article published in the Sydney Morning Herald 30 June 2015).