After conducting an audit of the government’s Farm Management Deposit Scheme, the Australian National Audit Office (ANAO) has concluded that the administration of the scheme, for which the Australian Taxation Office (ATO) and the Department of Agriculture was responsible for, “has not been fully effective”.
The FMD scheme allows primary producers to defer or even reduce their income tax liability for eligible amounts deposited into FMD accounts at authorised deposit-taking institutions (ADIs). The intention is to allow primary producers to set aside cash reserves earned during high-income years for use in low-income years.
On 1 July 2016, three changes to the scheme came into effect. These changes included increasing the deposit limit for FMDs for each FMD holder from $400,000 to $800,000; allowing drought-stricken primary producers to access FMDs within 12 months of deposit without losing their claimed tax concession; and allowing FMDs to be used to offset an agribusiness loan or other debt related to the primary production business.
However, the ANAO has found that the take-up rate of the new policy measures have been low, particularly for the loan offset measure.
Further, the office said risk identification and compliance arrangements to support the integrity of the scheme has not been up to scratch.
“The ATO has undertaken minimal specific compliance activity on the FMD scheme, reflecting its assessment that risks to revenue are low and other controls and broader compliance processes sufficiently address serious risks,” the ANAO said.
“As the ATO’s risk assessment and identification processes do not sufficiently capture FMD risks, it is unclear whether this level of compliance activity is appropriate.”
The Tax Office has agreed to the ANAO’s recommendation to:
- extend its use of data matching to support compliance with the FMD scheme; and
- maintain visibility over the nature and extent of compliance activities conducted on the scheme to ensure these are commensurate with the assessed level of risk.
Responding to the findings of the audit, the ATO stated: “The risks posed by this scheme are low in comparison to, and when considered in the context of, the many other risks managed by the ATO. We are supportive of efforts to improve compliance with this legislation but believe our current risk management and compliance processes for assuring compliance with this scheme are adequate and commensurate with the level of relative risk to the system.”
Both the ATO and the Department of Agriculture have agreed to complete an “overarching” risk assessment for the scheme, as well as reviewing the quality of the FMD scheme data provided by ADIs and consider improvements to the use of data.
“We will continue working collaboratively with the Department of Agriculture to refine our approaches to administration of the scheme, including a focus on seeking to realise potential benefits from improved data quality,” the ATO said.