Elders to distribute the first and only FMD offset account for primary producers
Australian farmers have a vital new tool to manage risk and taxable income, thanks to Elders’ distribution of a Farm Management Deposit Offset (FMD) product. In an Australian first, the product allows farmers to offset interest costs on money borrowed for their primary production business.
The Farm Management Deposit scheme is a way for Australian farmers to manage uneven cash flows and taxable incomes. It is common for primary producer income to vary significantly from year to year due to external influences such as natural disaster, climate and market variability.
FMDs allow eligible primary producers to set aside pre-tax income of up to $800,000 per individual, which they can draw on in future years when they need it. FMDs are a risk management tool that may allow primary producers to claim a tax deduction for the amount of a FMD if they hold the funds in an FMD for at least 12 months.
In July 2016, legislative changes made to the FMD scheme allowed banks to offer FMD offset accounts. Such accounts operate in the same way as a residential mortgage offset account – eligible primary producers can use their FMD balance to offset interest payable on farm loans held with the same financial institution. To date, Rural Bank is the only bank in Australia to offer an FMD offset product.
Elders Financial Services General Manager Liz Ryan, says the account generously works in favour of eligible primary producers which may be why the big banks are yet to offer a similar product.
“Rural Bank’s decision to be the first and (so far) only bank to offer the FMD offset account is a brave, and I think inspired, move,” says Ms Ryan.
“The product has the potential to allow individual eligible producers to significantly reduce their interest costs on farm debt. Naturally, this can also mean less revenue for the bank. The strategy can work for a smaller challenger bank like Rural Bank if it means we attract new customers from the majors who don’t offer this product,” she says.
“From a client perspective, we understand the challenges that producers face from season to season. This offering softens the blows of the affects from seasonal variations and is a useful tool in an unpredictable industry.”
Rural Bank chief financial officer Will Rayner, says that innovative financial solutions are an important demonstration of giving support to farmers and greater control of their finances.
“Australia has virtually the lowest level of farmer policy assistance in the OECD, at three per cent of Australia’s gross farm receipts. Australia sits well below the OECD and EU’s average of around 20 per cent, and the US and Canada at around 10 per cent,” says Mr Rayner.
“With this context, it is appropriate that policy makers and industry consider ways to back innovation and assist farmers to overcome income volatility,” he says.
“While Australian farmers are some of the most innovative and resilient farmers in the world, they rely on financial innovation and partnerships. Our new FMD Offset Account will provide farmers access to the right financial levers to help them ride out bumps from season to season.”