Changes to a farm tax management scheme went ahead when Barnaby Joyce was agriculture minister, despite advice that there was no case for change, a new report has found.

Key points: The scheme, altered by then-agriculture minister Barnaby Joyce in 2016, was established to help farmers defer or reduce their tax payments

The scheme, altered by then-agriculture minister Barnaby Joyce in 2016, was established to help farmers defer or reduce their tax payments The Auditor-General has found there was no strong case for change when the rules were amended

The Auditor-General has found there was no strong case for change when the rules were amended The ATO has also been found to have not sufficiently captured FMD risks and appropriate compliance activity is unclear

The Auditor-General's report, released this week, also found the administration of the Farm Management Deposits (FMD) scheme had "not been fully effective".

The scheme was established to help farmers defer or reduce their tax payments, acknowledging that cash flow for primary producers could fluctuate greatly.

In 2016, then-agriculture minister Barnaby Joyce altered the scheme as part of the Agriculture White Paper.

The changes increased the deposit limit from $400,000 to $800,000, permitted drought-affected farmers to access their deposits within a year without losing their tax concession, and allowed FMDs to be used to offset loans or other debts.

The Auditor-General found the Government received "largely sound advice … on the assessed costs, benefits and implementation risks associated with the three 2016 policy changes to the FMD scheme."

"None of the proposals were assessed to provide a strong case for change," the report said.

The changes to the farm tax management scheme went ahead nonetheless.

The report went on to say that the take-up rates of the measures "have been low, especially for the loan offset measure".

"The rationale for increasing the deposit limit to $800,000 could have been better explained and consultation undertaken earlier on the loan offset measure," the report said.

It was also critical of the Australian Tax Office's role in overseeing the FMD scheme.

"The ATO has undertaken minimal specific compliance activity on the FMD scheme," the report 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."

'We can always improve on it'

Rural Finance Minister David Littleproud said he would work with the Treasurer to respond to the report.

"We have continued to evolve the product to make it a key measure in terms of drought response … we can always improve on that and we will continue to do that," he said.

However, Opposition agriculture spokesman Joel Fitzgibbon said making "populist changes without proper consideration, can only in the long run be bad for Australian farmers".

"It's interesting that FMDs didn't appear, or haven't appeared to draw down quickly during this very bad drought, and that in itself should be a warning sign to Government that maybe it is becoming more about tax minimisation than it is about resilience to drought," he said.

The Auditor-General found there were about 45,000 FMD holders across Australia.

In June 2018, more than $6.5 billion was held in FMDs, up from $5 billion in 2016.