Alarm bells are ringing in rural accounting firms across Australia as farmers find typical farmland ownership structures are likely to be hammered by Canberra's proposed $3 million-plus super tax plans.
The Albanese government's proposal would double the tax to 30 per cent for earnings from superannuation funds with balances rising above $3m.
Climbing land valuations could force farmers to pay an extra 15pc annual tax on property held by their self managed superannuation funds.
Many farmers use their SMSF to buy extra property - adjoining paddocks, or entire farms - to help bolster their enterprise economies of scale and productivity.
While that land, rented back to the farm business, does not generally deliver significant annual cash flow for a producer's superannuation account, it should achieve solid capital value gains by the time the fund eventually liquidated its assets.
From July 2025, however, if the unrealised capital value of a parcel of land has pushed the SMSF's total balance above $3m it would be taxed the same way as regular share dividends received by the super fund or any assets the fund has sold during the year.
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Federal Treasurer, Jim Chalmers, claimed the changes should only affect only about 80,000 people, or about 0.5pc of superannuation accounts, and full details of the plan and its impact on SMSF are still to pending.
However, farm accountants and advisors have been stunned by the proposal.
They expected agricultural producers to make up many of those caught out by what were, in fact, "radical, unfair changes" which penalised operators who were doing the right thing.
Taxing unrealised gains from property held in superannuation trusts was equivalent to annually taxing the unrealised capital gain on a suburban home while the owners still lived in it.
If the proposal became law the farm sector would likely see a big personal superannuation exodus from farmland ownership because unrealised capital gains did not produce any cash to pay tax bills.
The proposed policy is cruel and creates uncertainty about the value of superannuation.
- William Laird, RSM Australia
Toowoomba-based partner and agribusiness and tax accountant with RSM Australia, William Laird, estimated across a majority of districts around Australia more than half the farmers with self managed superannuation would have land in their super portfolio.
"But a $3m parcel of farmland doesn't make you a very big farmer - and certainly not a wealthy one," he said.
"A standard mum and dad farming business won't make a living from a $3m farm."
"The proposed policy is cruel and creates uncertainty about the value of superannuation.
"It's breaking all current concepts of taxing a fund's realised earnings and not the mere fluctuation in underlying asset values.
"It will undoubtedly force liquidation of fund assets to finance tax costs being calculated with reference to a false marker."
Insufficient income
Mr Laird said most farmland owned by a super fund, or individuals, typically only yielded a low commercial cash flow of less than 3pc a year, which was insufficient to be funding tax annually on unrealised capital growth.
Yet, because land appreciated in value over time, it had made sense for farmers to invest in farmland for their eventual retirement, particularly as superannuation earnings had been taxed at a lower rate than income or capital gains on business assets.
Recent double digit rises in rural property values highlighted how unwitting farmers could be punished by their illiquid, but fast growing, SMSF balances in 2025.
West Australian-based RSM national agribusiness leader, Ross Paterson, noted an example of a client at Esperance where farmland prices had jumped from around $2500 a hectare (1000/acre) to more than $14,800/ha in about 15 years.
A 400ha block bought in 2006 as part of a SMSF portfolio for $1m was now worth $6m.
"Clearly there are a lot of consequences for our agri clients with farmland in SMSFs, and if they have big share portfolios," Mr Paterson said.
This could have huge ramifications for farm family succession planning and will cool investment in agriculture.
- Tony Mahar, National Farmers Federation
National Farmers Federation chief executive officer, Tony Mahar, said for many farmers, "their farm is their superannuation".
"This could have huge ramifications for farm family succession planning and will cool investment in agriculture," he said.
"We are definitely calling for formal consultation before the measure is budgeted and legislated later this year."
NSW Farmers also "encouraged" the federal government to make sure any super tax changes did not inadvertently penalise hard working primary producers who operated in a capital intensive, asset intensive environment.
Farmers association economist, Brendan O'keefe, also noted the proposed $3m threshold would not be indexed, so as time went by it would decline in real value to capture a greater proportion of illiquid SMSF assets.
Given Canberra's $3m ceiling proposal did not reflect the true liquidity of many farm superannuation earnings, the association expected further consultation would be needed to ensure adjustments could more fairly reflect the intention of the policy.
Actuary and advisor to SA Super, Michael Rice, told The Australian Financial Review the government urgently needed to consult with experts and stakeholders because its super tax calculation methodology looked like "something written quickly on the back of an envelope".
RSM's Mr Baird said while wage and salary earners rightly viewed $3m as a lot of money to have as a superannuation nest egg, it was a false marker for agriculture and investment markets.
It failed to recognise the normal fluctuation in asset values, "which may fall the very next day, well before any tax is actually payable".
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Andrew Marshall
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
Andrew Marshall is the group agribusiness writer for ACM's state agricultural weeklies and websites. He is a former editor at The Land and has worked in various Rural Press group roles in Canberra, North Richmond (NSW) and Toowoomba (Qld).
