SMSFA slams ASFA ‘research’ over $3 million tax
The SMSF Association has refuted “research” by the Association of Superannuation Funds of Australia, claiming that only 1 per cent of SMSFs with balances exceeding $3 million have farm-related income.
Under the federal government’s proposed new tax, earnings attributable to member superannuation balances exceeding $3 million will be taxed at a higher rate.
SMSF Association CEO Peter Burgess said ASFA’s claim that this tax will have a negligible impact on the farming community is highly questionable.
“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 may be impacted by this proposed law is not valid,” Mr Burgess said.
“ATO income tax return data has limited application for substantive data analysis due to the way the tax return data is collated and reported.”
Mr Burgess said the new tax will not just affect farms but will apply across the SMSF sector and reiterated that individual tax returns are an unreliable data source from which to draw inferences on the asset holdings or liquidity of SMSFs.
He said although the exact number of farming properties held in SMSFs is unavailable, the National Farmers Federation’s submission to the Better Targeted Superannuation Concessions Consultation said anecdotal evidence suggested that more than 30 per cent of Australian farms could be held in an SMSF.
The NFF said it is a common strategy to hold a farming property in an SMSF with the business operating from a different structure. Under this arrangement, the SMSF will receive the leasing income but will not receive income from the business or farming operations.
“The key point that appears to have been overlooked is that there are various ways farmers can structure their business,” Mr Burgess said.
“How they choose to receive their income will also vary greatly, including wages, directors’ fees, dividends, and trust distributions.”
He said that although the number of farms affected is unavailable, research by the University of Adelaide commissioned by the SMSFA shows the proposed tax could negatively impact up to 50,000 SMSF members, with the mean additional tax liability exceeding $80,000 in 2020–21 and 2021–22.
“Our own modelling shows that by taxing unrealised capital gains, a member’s tax liability could vary dramatically from one year to the next making liquidity management extremely difficult,” he said.
Additionally, farming is prone to cyclical income, with no income or losses in years where significant events occur, such as drought, floods, and fire which 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 circumstances.
The SMSFA also rejected claims that the requirement for SMSFs to receive a market rate of income from fund assets, including farming land which may be owned by the SMSF, should ensure there is enough fund liquidity to pay this proposed tax.
“Many farming properties historically generate low income yields so the land value is not a good indicator of the level of lease income,” Mr Burgess said.
“Furthermore, increases in property values do not always equate to an increase in lease income. This doesn’t make farming properties an inappropriate investment for an SMSF, it just means the members have opted for capital growth over a high-income producing asset.”
He concluded the existing policy settings will already inhibit the ability to attain significantly high balances in superannuation.
“These include various measures including caps on contributions and total superannuation balance tests that additionally limit or prohibit a person’s ability to make personal, non-concessional contributions,” he said.
