THE Federal Government looks set to increase its revenue by taxing self-managed superannuation fund (SMSF) balances exceeding $3 million.

In essence, it is looking to annually collect revenue calculated as a proportion of ever-rising land values, and the move has stunned farming families which use SMSFs to hold and then transfer property to the next generation.

Groups such as Grain Producers Australia, GrainGrowers, and the National Farmers Federation have been vocal in their criticism of the legislation.

Drafted in 2023 but stalled in the Senate, it is expected to come into effect this financial year, bringing with it costs tied to regular valuations and succession and financial planning, as well as biting into intergenerational incomes.

To bring some clarity to what the tax means for farming families, GPA last week hosted a webinar to canvass the thoughts and advice of RSM partner Katie Timms, and Seer Financial Group founding partner and accountant John Thomson.

The Super Tax Impacts on the Family Farm webinar had an audience of 50 from across Australia, and was anchored by GPA’s Rachael Oxborrow, with GPA chair and WA grower Barry Large also on the panel.

It threw up two clear pieces of advice came from the experts: Don’t panic, and look carefully into options for farm assets in a changing taxation environment.

Extra cost

The Division 296 legislation will impose a tax rate of 15 percent on a percentage of earnings equal to the percentage of superannuation balances that exceed $3 million for an income year.

Without indexation attached to the $3M figure, Mr Large said there would be more farms breaching the threshold “every day of the week going forward because they don’t make any more land”.

Many mixed farmers in South Australia and Victoria have just had their driest period in living memory, and Mr Large said the tax was of particular concern to them.

“With the view of being taxed on unrealised capital gains, it certainly scares you when you could be like South Australia or Victoria.”

He said SA and Vic producers were “trying to work out how…to feed the stock, let alone how…to pay the tax on an unrealised capital gain”.

“We’re intergenerational; that’s what it’s all about.”

“I am nationally representing all growers across the country; at the moment, it’s a very nauseating feeling.”

Both Mr Thomson and Ms Timms called for a solid understanding of the new tax, and for calm.

“It’s not actually on the quantum of the unrealised capital gain; it’s on the increment and the proportion above the $3 million,” Mr Thomson said.

“The media haven’t done a particularly good job of explaining that.”

Calm consideration needed

Those aged 60 or over can start to access their super under condition of release, and Mr Thomson said they would have the option to “simply pull those assets out of superannuation (for) transfer into other entities.”

Ms Timms said different strategies need to come into play and decisions need to be made.

“If you’re at a condition of release…that might mean you’re able to access and… transfer the asset out of super, but what capital gains tax implications are there?

Katie Timms’ message is clear: don’t panic by making a rash decision you may come to regret.

“If you’re lucky enough to be in WA, our stamp duty laws are pretty great when we’re transferring assets; it’s not the same in other states.

“What is the cost that you’re going to be looking at to move this?

“What’s the timing that you should start to make these decisions?

“If this is an intergenerational asset…we don’t want those assets in super, but if this is a long-term sale asset, do we want it in super?

RSM partner and superannuation specialist Katie Timms on the GPA webinar.

Frequent valuations expected

The new tax points to farmland in a SMSF having to be valued as frequently as annually.

“Like all legislation, they drafted it, they’ve modelled it against industry funds…and they’ve got simply no idea of the practicalities of how this is going to work,” Mr Thomson said.

“Does that mean someone from a valuer needs to go out to Barry Large’s farm…every year, or is it every three years, or where do we go from here?”

“This is going to potentially layer a whole new level of cost that we’ve never seen before.”

Ms Timms was also critical of the cost of valuation.

“Does anyone get value out of having to go and pay a valuer to value their asset every single year? Of course not.

“You’re doing it because of compliance and you’re doing it because people are making you do it.

“I think it’s probably going to bring forward… some succession transfer.”

That could mean transferring into entities other than SMSFs, which Ms Timms said could do the government out of some expected revenue.

“I don’t think the government’s really factored that into their modelling.”

Ms Timms said 30 June 2026 was a key date for the new super tax.

“I think there’s going to be a lot of activity in this next 12 months for people who are going to be impacted to see what is that number actually going to look like and do I need to pull some triggers earlier.”

Ms Timms said with amounts like $4M, clients may elect to sell some of their farming land and put cash into the fund to avoid taxable unrealised capital growth, even if that incurs a stamp duty expense.

The revenue can then be redeployed in the family business, and may lead to clients saying: “We’ll take 100pc of the cash out of the fund and we’ll loan it back to our companies and trusts under security”.

“While Treasury think they’re on a winner, they have done a very very poor job of understanding the dynamics around the people who control (SMSFs).”

Trusts and alternatives

Mr Thomson said if the government is out to equalise incomes, it could consider the kind of mutual fund available in the US that hands tax benefits to investors and puts capital into infrastructure like “a road or a port or a wind farm”.

“Rather than destroy what we’ve already got, are we better going back to government and saying: Have you thought about a better way of doing this?”

Mr Thomson also made the point that outside farming, many non-dependent inheritors of superannuation money spend it on “new cars and holidays, which is not really helping because those same people when they retire are back on an age pension.”

“Are we better off rejigging the whole system to encourage investment in Australian infrastructure?

“People seem to be reluctant to have that conversation about why aren’t we investing in ourselves as opposed to…an industry fund having a lot of their assets offshore where…with self-managed super funds, the vast majority are invested in Australia.

“Those who are investing in Australia are effectively being penalised.”

Mr Thomson said superannuation still delivered “huge benefits for the vast majority of Australians” including farmers.

“If you’ve got farmland…in superannuation, it allows for Mum and Dad when they want to retire to actually get an income stream from the farm because the farm is obviously paying rent to the super fund.

“Mum and Dad take that income out as a tax-free pension.

“Parents have got some comfort in that they’ve got an asset that can’t be lost and they’ve got an income which is assured and that they don’t pay tax on.

“They need less cash to live on because the tax doesn’t become part of their expenditure.”

Mr Thomson said super also provided business people, farmers included, with a high degree of asset protection.

“If a business goes through liquidation of administration, those assets held by those directors that would be caught up under director penalties and other liabilities are protected.

“The vast majority of our business clients have significant assets in their super fund simply for asset protection, so the asset protection aspect is critical.

“There’s a lot more to this story than just the $3 million.”

“Why we’ve always put assets into super funds is to be a quasi asset-protection family-succession strategy, and it has worked extremely well.

“The thing that’s probably caught us out is none of us ever expected land to go up as much as it has.”

Mr Large, who farms in WA’s Miling district, can attest to the startling rise in land values.

“Who would have thought land would go from $30 an acre to $4000 an acre in 30 years, and I can demonstrate that,” Mr Large said.

“The hardest thing is unrealised capital gains going on top of our taxable income annually and that is our concern.”

Surprise return

Ms Timms said the super tax was announced “a long time ago”, and was subsequently discounted by those with an interest in SMSFs.

“It went through the House of Reps and got referred to a Senate committee who came back and said “No problems; we think it’s fine.”

“It stalled in the Senate; they couldn’t get the support, and the election result genuinely I think caught everyone off guard.

“I was at the SMSF conference in February where…it was like a party had happened because everyone was celebrating, saying: ‘We’ve defeated this tax; this tax is not going to get through’.”

The Albanese Government’s landslide victory has changed that view.

“Anyone that has watched (Treasurer) Jim Chalmers give an interview over the last month can see he’s just getting more and more irritated by people challenging him on this tax.”

“He is doubling down…and is giving no indication that he is interested in making any sort of adjustments to it.”

Nonetheless, Mr Large said GPA would be tackling the government on its tax agenda, as it did with success on the biosecurity levy proposed in the previous term.

“We will make it known that there needs to be a bit more thought put into where we’re going with this.”

“We will certainly be presenting why this is may be not quite right for growers.”

Mr Thomson said more tax reform that impacts farming families may be coming.

“This is not a one off.

“There is a clear agenda by the current government to change how tax policy affects wealth management and wealth retention in Australia.”

Ms Timms was far from optimistic about GPA’s chances of bringing about changes to legislation at this late stage.

“Should you be advocating? Absolutely. Is there a likelihood of success? I don’t think so.”

“We really are at the point of: It’s more about management than really looking at can we actually make any difference in the next…couple of months before parliament sits again.”

Ms Timms said the treasurer was choosing his words carefully.

“He’s never said: We’re not going to look at trusts,” Ms Timms said.

She said “a really big risk” exists for family farms restructuring to avoid the super tax by putting assets into a trust as a “classic succession vehicle,” and them being next on the list for taxation reform.

“That actually may be next on the agenda.”

Get it in writing

Mr Thomson said whatever advice is sought needs to be obtained in writing.

“You need it in writing so you can go home and review it.

“You need to go and make sure you’ve got a plan that solves all of the issues, not just puts a band-aid on this immediate issue, because it’s going to bring out a lot of other issues with estate planning and asset protection.”

Ms Timms said modelling exercises based on different scenarios were needed to ensure good decisions were made, and delaying them beyond the current financial year could be the answer.

“Understand the calculation, understand the formula so that at least any decision you’re making is an educated one and it’s based on what is right for you.”

She said panicked decisions based on not wanting to pay the new tax could lead to regret in terms of overall structure and succession planning.

“It might be that…super is still the best tax environment to have assets.”

“The thing you can do is really understand how this applies to you specifically and what are…your long-term goals.”

Mr Large said his perspective came from quantifying what his family farm’s exposure to the new tax is, and seeking advice.

“Every year we do a bit of tax planning; this is just a deep dive into a bit more planning.”

To watch the webinar, click here.

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