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Fully assessable when withdrawn.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!