Regional town businesses are likely to be hit as hard, or harder, than farmers if the federal government doesn't rethink its plan to double taxes on self managed superannuation fund balances rising above $3 million.
Canberra's agenda has sent shockwaves through regional property markets.
The sector fears a potential rapid exodus from rural and commercial property markets by owners with asset-heavy superannuation investments accruing annual tax bills they cannot afford to pay.
The extra 15 per cent annual super tax, proposed for 2025, will target not just superannuation savings, but the unrealised valuation gains on property and shares held by superannuation trusts.
The impost will be in addition to the 15pc annual tax already paid by the super fund.
In rural Australia those superannuation assets often include a primary producer's farmland, or premises which small business owners operate in, which are rented by the farmer or business operator.
"Any tax on unrealised earnings will be catastrophic for the rural sector," said the head of agribusiness transactional services with big Colliers property marketing group, Rawdon Briggs.
He said property investments were not a high cash flow earnings stream, but rather a long term safety net for farmers whose main earnings from agriculture were subject to frequent income fluctuations.
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"The real issue here is that the government wants to tax something that doesn't actually generate much money annually, and which may change in value from year to year," Mr Briggs said.
"It's an insidious plan.
"It's provoked a lot of discussion about what people may do.
"I think there'll be a significant impact on asset ownership and succession planning - it will fast forward some family succession plan time lines."
CBRE Agribusiness managing director, David Goodfellow, said since the 1990s current superannuation rules had rewarded proactive retirement savings planning, also providing incentives for farmers to invest in land, expand their enterprises and look to establishing a good base for future generations.
"If you take away those incentives or penalise people for their superannuation balance, you undermine confidence in the whole concept of saving for retirement," he said.
"We're all living longer. The government really needs to have fewer people drawing on publicly funded pensions."
Anxiety about Treasurer, Jim Chalmers' super tax on asset valuations has been compounded by recent double digit percentage surges in property prices.
Property values are quite disconnected from the rate of cash flow return they are likely to generate
- Charlie Thomas, National Farmers Federation
The National Farmers Federation noted, hypothetically, a self managed fund could be paying a further $50,000 at tax time because its farmland valuation jumped above $3m to $3.3m in a year, yet its earning capacity stayed unchanged, or fell.
"Property values are quite disconnected from the rate of cash flow return they are likely to generate," said NFF corporate affairs manager, Charlie Thomas.
Looking to exit
He said the only option available to some farmers' funds would be to sell some of those assets, even though they were often being held with a view to a family succession plan for the next generation taking over the farm.
Agribusiness accountant and partner with RSM Australia, William Laird, said it was likely many farming families would look to divest their super fund's ownership of farmland assets and buy the land back themselves.
But that, too, could be expensive and problematic.
"First they'll have to find the funds - and it's getting more expensive to borrow money - then there are stamp duties and sale transfer costs to consider," he said.
Mr Laird said given the farm was also home for most farmers, the government's tax plan was extraordinarily discriminatory.
Anybody owning a Sydney or Melbourne property received tax concessions on their main residence.
In the bush, superannuation currently provided a way for landholders to get similar concessions on capital growth in property.
"In fact, the small area of their farm house and its curtilage would be of significantly less value than a house in a capital city," he said.
Super fund freehold
Colliers' Mr Briggs said in country towns it was "very, very common" for small business owners, including rural retailers, metal fabricators and medical practitioners, to rent a premises from their own superannuation fund, and for that fund to keep owning the freehold properties after they retired.
Former NSW Central Tablelands financial planner, Greg Madden, agreed numerous main street businesses in country towns formed part of their operator's superannuation, "but like a farm, the value of those assets has no direct bearing on what income you'll generate each year".
The treechange migration rush to the bush by city buyers moving to regional centres and farms had sent property prices rocketing almost overnight, highlighting how inappropriate land valuations were as an income tax measure.
"City people arrive at Bathurst, Orange or Oberon and just pay what they like - they don't worry how many cattle they need to generate a return."
Agribusiness Australia chairman and Elders managing director, Mark Allison, wanted any proposed tax changes to acknowledge agricultural taxation rules already recognised a need for income averaging because farm earnings were so volatile.
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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).
