In response to the Senate economic committee’s release of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 released last Friday, the NFF stated the legislation could see families having to sell farms.
NFF chief executive Tony Mahar said the final report does not appear to address the issues raised by the federation about the potential impact the reform may have on small business and family farms.
“These reforms could be like a sledgehammer to succession planning for family farms,” he said.
“The nature of farming means the businesses are structured differently, so rather than making regular superannuation contributions, many farmers hold their homes and businesses in SMSFs.”
He said that in many cases, older farmers will hold their farm in an SMSF and lease it to their children, providing retirement income for them while allowing the next generation to start farming.
“We are extremely worried the proposed taxation of ‘unrealised gains’ on holdings will increase the tax obligation so much, farmers will be forced to sell land assets to pay the tax bill,” Mahar said.
“Given high land values and modest cash income generated from farming, this new tax will represent a significant proportion of a farmers’ annual retirement income, or even exceed it.”
He added the proposed legislation may see farmers left with the choice of either selling their farm to meet the new tax obligations or increasing their lease rates so much that their children and grandchildren can’t afford it and leave the industry.
“This is a lose-lose situation and undoubtedly not what the wider community would expect these reforms intended to deliver,” he said.
The NFF’s concerns have been echoed in the inquiry with evidence from the SMSF Association estimating over 17,000 accounts in 2021–22 held farming land and of these, more than 3,500 would be impacted by the new tax. It’s expected this figure could grow substantially higher in coming years if the government continues not to apply indexation to the base threshold.
The SMSFA has said farmers and small business operators with land and business premises owned by their SMSF may encounter significant liquidity pressures.
Furthermore, it stated that changes in property values do not automatically correlate to an increase in leasing income or rental yields. If farmers do not have enough cash inside the SMSF or outside of the SMSF then they may have to sell assets including the farm to pay such liabilities.
Similarly, evidence provided to the inquiry by The Tax Institute, Financial Advice Association Australia, and the Institute of Financial Professionals Australia also raised similar concerns about farmers unfairly being hit and the changes potentially forcing the sale of farms.
“It is imperative that the government reassess this tax and explain how everyday farming families will not become collateral damage as a consequence of this policy,” Mahar said.
