Fonterra Co-operative Support loan update

In 2015 when milk prices were low, Fonterra offered its shareholders a support loan to provide assistance through what was a tough period.  Although it wasn’t compulsory to take up the loan, the loan provided 50 cents for every kgMS produced from 1 June – 31 December 2015 for any share-backed Fonterra supplier as at 30 September 2015.

From October 2015 to April 2016 the loan was advanced by monthly instalments, and paid out to farmers along with their monthly milk cheques.  These instalments were recorded both on the monthly milk statements and on separate loan statements sent out each time the loan balance changed.

Up until 31 May 2017 the Fonterra Co-Operative support loan was an interest-free loan.  As part of the original loan conditions interest will now start being charged from 1 June 2017, and this rate will be reviewed and reset every three months.  The interest rate to be charged from 1 June – 31 August 2017 is 2.47%, and this is calculated as being Fonterra’s cost of borrowings.  These interest payments will be deducted from the monthly milk cheque, and a Co-Operative loan statement will be sent out each month to show the interest charges.

It is important to remember when preparing your GST return that there is no GST component on interest payments.  For those of you that just return the net milk cheque deposit as income you will need to add back the interest deduction first so as not to under-return your income.

Below is an example of how this will be calculated for your GST return:

  • Fonterra milk cheque received in bank: $74,000.00
  • Interest charged for month: $19.50
  • Actual milk income to return for GST: $74,019.50

The other major loan condition is that the loan principal is only repayable once the total advance payment rate (base advance rate + capacity adjustment) in a season is more than $6 kgMS. The amount above $6 is multiplied by the season-to-date production to determine the monthly payment amount until the loan is fully repaid. This total advance rate threshold of $6 has now been reached and as such $0.15 will be deducted from the final milk payment for the 2016/17 season in the October retro payment, paid on 20 October 2017. 

Again, please note there is no GST component on the loan repayments so they will need to be added back to the net milk cheque deposited so you are correctly accounting for your income received. 

Below is an example of how this will be calculated for your GST return:

  • Fonterra milk cheque received in bank: $74,000.00
  • Interest charged for month: $19.50
  • Loan repayment made: $2,500.00
  • Actual milk income to return for GST: $76,519.50

If you have any queries please contact your local Findex adviser.