Question

Which type of account is a tax-effective account that allows primary producers to set aside pre-tax income as a cash reserve?

Option 1: Savings Account
Option 2: Term Deposit Account
Option 3: Offset Account
Option 4: Farm Management Deposit Account

Answer 1

The Farm Management Deposit Account is a tax-effective account for primary producers to set aside pre-tax income as a cash reserve.

Step-by-step explanation:

The type of account that allows primary producers to set aside pre-tax income as a cash reserve in a tax-effective manner is Option 4: Farm Management Deposit Account. Unlike typical savings accounts or term deposits, the Farm Management Deposit Account is specifically designed to help farmers manage their income, particularly in dealing with the variability of income due to factors like fluctuating market prices or adverse weather conditions. This account allows primary producers to shift income from years of good earnings to years with lower earnings, assisting in smoothing out the fluctuations and helping with cash flow management.