A CRITICAL vote is coming up in the Senate which could impact the many farmers who have land in their Self Managed Superannuation Funds (SMSFs).
The vote is on the Albanese government’s Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, which has passed through the House of Representatives and will now be before the Senate.
If enacted, the taxation of superannuation for fund members with balances over $3 million will be increased so that unrealised capital gains will be taxed (pro-rata above the threshold).
The inclusion of farmland in superannuation funds has been common practice having been instigated, in many cases, to take advantage of an opportunity arising from the Howard-Costello government’s Simpler Super reforms of 2006.
These allowed individuals to make a one-off, non-concessional (after-tax) contribution of up to $1 million into their superannuation accounts.
Many farming couples joined forces and put $2 million worth of country into their SMSFs.
I know this because, like many valuers, I was involved with valuing the land at the time.
In mid-2006, farmland values were a fraction of what they are today, and the capital growth involved has been substantial.
Values vary according to land type, but it is not drawing an overly long bow to suggest that they are now some four times what they were in 2006.
Thus, if a husband and wife put $2 million of land into their SMSF they might now be contemplating a $6million capital asset.
The 20-year average annual capital growth rate for land in south-west Victoria provided by Rural Bank is 8.9 per cent.
Thus a $6 million land holding in an SMSF could quite conceivably result in a gain of $534,000 in a single year.
It might well be less, but it might be a lot more.
The tax implications of this could be serious.
The main problem is that this could jeopardise the family’s holding and necessitate the selling off of some of the farm.
Where land is held outside an SMSF, this gain would only be taxable when the asset was “realised” i.e. either sold or transferred, but under the proposed legislation it would be taxed on a year-on-year basis.
So what are the odds of the legislation passing?
In a word, it’s too close to call.
There are 76 senators in Canberra so a majority of 39 is required for the legislation to pass.
The government’s 25 senators and the Greens’ 11 make up 36, meaning that the Bill requires three independents to support it.
Of the 11 crossbenchers in the Senate, four remain undecided (please refer to table opposite), so things could go either way.
There are a number of arguments against the proposed changes.
At a general level, it is clearly a case of moving the goalposts during the game.
At a more detailed level, the changes adversely affect those who have a substantial proportion of their superannuation funds in direct property generally and in farmland particularly.
It is likely that farmers will be affected worse than residential or commercial property investors since the structure of the family business could easily be imperilled by having the prospect of the – otherwise unnecessary – sale of land forced upon them.
As far as possible courses of action are concerned, it is pretty clear the four undecided senators should be provided with detailed costings of the likely impact of the tax on family farm budgets.
With the benefit of hindsight, it’s easy to suggest that it might not have been prudent to place the family farm into a vehicle with so much government control associated with it.
But, goal posts get moved a lot these days.
