Monthly Archives

May 2016


Dairy Industry – Crisis or Normal Commodity Cycles

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Opinion piece – Lachlan Polkinghorne ProAdvice

When organisations try to manipulate the supply/demand fundamentals someone generally gets hurt – it is regularly the farmer.  The wool industry has struggled to recover from the impact of the reserve price scheme in the 80s. More recently, Murray Goulburn (MG) have chosen to ignore the low global dairy price that was clearly evident and transparent in the world dairy markets over the last 12 months.

Speculation is rife as to the underlying motivation in the MG camp, and their delayed reaction to a low world milk price:  MG announced they had ‘changed strategy’ to value adding; MG had raised capital on the prediction of a $6/kg milk solids (MS) milk price; Production didn’t fall in other markets; and the $A didn’t keep falling.  Only the board and management really know why, with only the board left!

It is inexcusable to make payments to suppliers for 9 month and then announce ‘actually 10 to 15% of that income payment was a loan’.  Farmers had continued to make spending decision on cow numbers, feed and fertiliser, R&M, capital and personal spending based on a $5.60/kg MS price (that is likely to increase).  This spending will have added to the overall liability build up by the unsuspecting farmers and they also kept the milk churning out – exacerbating the problem. Read More


What’s Peakey’s view……New role for Farm Management Deposits from 1st July 2016

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By Clinton Peake

The Tax and Superannuation Laws Amendment (2016 Measures No 1.) Bill received royal assent on 5 May 2016. The substantive content of Schedule 3 of the Bill
• Raising the maximum amount that can be held in FMDs by a primary producer from the current limit of $400,000 to $800,00
• Providing relief to primary producers experiencing severe drought conditions by allowing them to withdraw an amount that has been held in an FMD for less than 12 months, without affecting the income tax treatment of the FMD in the earlier income year
• Permitting amounts held in an FMD to offset a loan or other debt (that is as a result of the arrangement, a lower amount of interest is charged on the loan than would otherwise be the case) relating to the FMD owner’s primary production business and
• Encouraging primary producers to use FMD’s to improve cash flow through this loan offsetting arrangement.

The start date is 1 July 2016 so applies to the 2017 income tax year.

Care should still be taken to consider the downside’s of FMD’s – fully assessable in the year of death.
Fully assessable when withdrawn. They are a true deferral arrangement in addition to the 5 year primary production averaging that already exists. They should be used as part of an integrated tax and strategic planning arrangement and may come to the fore after the federal election on July 2nd.

Where FMD’s sit in cash risk management and debt serviceability is a case by case situation… sometimes we are better off actually retiring the debt rather than using an offset that we need to withdraw and pay tax on later… just a thought. We would have very few people anywhere near the $400,000 limit and definitely don’t think people in their 60’s ought to go anywhere near $800,000… this could be a $400,000 tax bill waiting to happen… beware the devil bearing fruit!


Federal Budget Snippet

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budgetBy Clinton Peake


The federal government pitch of jobs and growth will remain to be seen. The reserve bank cutting interest rates to 1.75% suggests that storm clouds continue on the horizon with low inflation. The housing property bubble was not attended to via any change to negative gearing so may continue for some time yet.

Some of the growth assumptions underpinning the budget look optimistic with news continuing about the Chinese in particular going through a period of transition from resources boom to food security and service consumption. Read More