Debunking a superannuation tax myth: SMSF Association clarifies the impact on Aussie farms

By Newsdesk

December 11 2023
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In the ongoing debate about a proposed new tax targeting superannuation funds exceeding $3 million, the SMSF Association has stepped in to challenge claims from the Association of Superannuation Funds of Australia (ASFA) that the tax's impact on farmers would be minimal.

Debunking a superannuation tax myth: SMSF Association clarifies the impact on Aussie farms

According to the ASFA, only one per cent of self-managed superannuation funds (SMSFs) with balances over $3 million have farm-related income, suggesting the new tax would have a negligible effect on the agricultural community. However, the SMSF Association has highlighted serious flaws in this argument.

Peter Burgess, the SMSF Association's CEO, expressed skepticism towards ASFA's findings: “The simple fact is farming properties can be held under myriad tax structures, so using personal tax return data to extrapolate the number of farming properties that which may be impacted by this proposed law is not valid,” he contended. He also pointed out that “ATO income tax return data has limited application for substantive data analysis due to the way the tax return data is collated and reported.”

The concern for the SMSF Association centres not just on farms, but across the wider SMSF sector, with Burgess noting, “Individual tax returns are an unreliable data source from which to draw inferences on the asset holdings or liquidity of SMSFs.” Despite the lack of precise numbers of farms held in SMSFs, the National Farmers Federation suggests that more than 30 percent of Australian farms could be in an SMSF, which according to Burgess, is "a common vehicle used by Australian farm businesses to manage assets and use agricultural land to provide retirement income."

Burgess highlighted the complications for farmers who may be affected by the proposed tax, considering the cyclical nature of farming income and the impracticality of relating the value of assets to taxable income, especially during years impacted by extreme events like droughts, floods, or fires. He added, “This limits the ability to make concessional super contributions or to personally pay tax assessed on the value of superannuation fund assets, which can rise in value despite their personal circumstances.”

The Association is also challenging the idea that SMSFs will have sufficient liquidity to pay the proposed tax, specifically rejecting the claim that compliance with market rate income regulations for SMSF assets would mitigate liquidity concerns. Burgess explained, “Many farming properties historically generate low income yields so the land value is not a good indicator of the level of lease income,” and further argued, “increases in property values do not always equate to an increase in lease income.”

The implications of the proposed tax are potentially serious, with research by the University of Adelaide indicating that the tax could negatively impact up to 50,000 SMSF members. Burgess warned of the variable nature of tax liability due to the inclusion of unrealized capital gains in the tax, which can make liquidity management extremely challenging.

He concluded with a stark message about the proposed tax: “The tragedy of this proposed tax is that it’s a solution looking for a problem. The fact is the ability to attain significantly high balances in superannuation will be inhibited by existing policy settings." Burgess emphasised the existence of other measures that already limit individuals' capacity to contribute to their superannuation funds, reflecting a comprehensive approach to managing high balances already in place.

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