WHEN the Australian Government announces changes to superannuation legislation, alarm bells generally don’t ring for farmers - most farmers will go a lifetime without benefitting from the super guarantee, and many don’t make regular voluntary contributions.

However, accountants have long recommended the utilisation of self-managed super funds (SMSF) as a tax minimisation and asset protection tool.

Often as part of succession planning farmland can be purchased in or moved into a super fund, which then leases the property back to the business.

This is often utilised as a way for the older generation to receive a tax effective form of income and retain ownership of their major asset, whilst allowing the next generation to farm the land.

However, in an attempt to increase the amount of tax making it to federal coffers, the Australian Government has introduced a Bill to tax all super balances above $3 million at the increased rate of 30 per cent. As part of this reform, Australia is also set to become the only country in the world to tax unrealised gains made in their tax payers pension scheme.

This is in effect charging people for money they have not yet made.

The idea is, an account holder will be liable to pay tax on the amount the value of their super account has increased between the start and end of each financial year, including any increases to asset values ‘on paper’.

In reality, the following scenario could play out; farmer has the family farm in a self managed super account, at the start of the year it is valued at $3 million.

Over the financial year, the property value increases by $500,000.

The farmer would then be taxed on that $500,000 increase, and would need to find the liquid cash to pay the tax bill.

An even worse scenario could be the same $3 million property is rezoned by council, and all of a sudden doubles in value.

The farmer doesn’t want to sell the property, as they wish to continue farming as they always have.

But all of a sudden they will have a huge tax liability, that previously they wouldn’t need to pay until the property was sold, in the form of capital gains.

However, now they need to come up with the money that year, and in reality may be forced to sell all or part of their land to fund it.

The $3 million cap is also not set to be indexed; whilst this figure may seem a lot in current times, as we all know inflation will eat away at the effective value of it.

NFF president David Jochinke said the sector has expressed consistent concern about the potential impact of the Bill on hardworking farming families across the country.

“The farm sector is particularly worried that the taxation of ‘unrealised gains’ may force primary producers to sell their land assets in order to pay off their new tax bill,” Mr Jochinke said.

“Thousands of farms across Australia are currently held in a self-managed superannuation fund (SMSF) and are often leased to the next generation, providing both retirement income as well as an opportunity for the next generation to take over the business.”

Given asset values can experience growth but continue to generate only modest cash income, this new tax on ‘unrealised gains’ may see an increased obligation that represents a significant proportion of a farmer’s income derived from their farm.

“If this Bill was to continue through parliament in its current form, it may see some farmers have to sell their farms and homes, take out a loan, or even lift the rent they charge their own family members, just to cover the cost of the additional tax,” Mr Jochinke said.

“These are not people with hundreds of millions of dollars in their superannuation accounts, but rather hard-working Australians who have worked hard to build their farms in order to pass onto the kids and grandkids.”

An extraordinarily broad range of groups have raised concerns around the Bill and in particular the taxation of ‘unrealised gains’.

In a demonstration of the seriousness of these issues, in August, eleven leading financial industry organisations and associations including CPA Australia, Chartered Accountants Australia and New Zealand, the SMSF Association and the Financial Services Council sounded the alarm, outlining that they have concerns about “the impact on small business and primary producers who hold their small business premise and primary production land in an SMSF … Some small business owners will be forced to sell their business premises to save their business.”

Further, the University of Adelaide estimates that had this tax been introduced in the 2021 and 2022 financial years, over 13 per cent of impacted members would have experienced liquidity stress in meeting the new tax obligations.

“As the Bill now moves to the Senate, we urge all parliamentarians, in particular Senate crossbenchers, to continue to listen to Australian farmers, small businesses and the raft of financial experts who have all raised the same concerns,” Mr Jochinke said.

“We are calling on Senators to now do what is necessary to address the consequences of this Bill on thousands of hard-working farmers and small business owners across the country,” Mr Jochinke said.