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.
I don’t understand all the excitement.
A couple can retire with $3.8M invested ($1.9M each) with tax free earnings on the investments? You can’t get that deal anywhere else in the World!
And then any excess over $1.9m each is taxed at only 15%?
God bless Australia!
That’s more than plenty for most Australians to retire on. As taxpayers, I don’t think we should be footing the bill for any more tax concessions than that.
If the new law is deemed draconian enough to make people reduce their super under $3M each, maybe that’s fair and is the intent?
It seems the most vocal about Labor’s $3M tax are not those affected, but the service providers and their groups who make a living off them!
The big excitement is all because the Government has decided to tax unrealised gains for the Division 296 tax all because it’s “too hard” for APRA (read Industry) funds to do a proper calculation of member movements and split out unrealised capital gains from realised capital gains.
Never before in Australia or elsewhere has anyone been taxed on unrealised gains.
And, the other big thing is if you have a big decrease you don’t get a refund, you just get an offset, which depending on circumstances, may never actually be utilised to offset future tax.
Bruno, the excitement or rather frustration and anxiety, is because most people have no idea what this legislation actually means in practice.
For myself and my partner, we will each pay more than our SMSF pays on its taxable income, meaning all up, we will now be paying more than 3 times the current tax which currently sits at 15%, and the reason being the unrealised capital gains component.
This will also mean that we are paying cash on paper gains (our investments in NSW have gone up stupidly with an OK investment gain outside of the capital gains), but before too long, the cash returns will be eaten up by this new tax and our soon to start retirement income. We were OK for some time befoire we needed to sell the investments, but now it will happen withing several years to keep up with the tax.
Our SMSF is our only savings outside of our home, and the tax will be almost all of our present combined income from our normal wages income which will not be enough to live on.
I am not a service provider, just a Mum and Dad investor, who worked and scrimped and sacrificed so that I did not have to rely on any government for living expenses in my older years. In Sydney $3m does not go very far, and we are caught up by this egregious and not well thought out tax, from a greedy government that wants to just take our life’s savings, simply because it can by creating these laws – a fantastic magic wand to do what it wants, when it wants, and stuff whoever it affects.
Agreed Kym. If the tax on unrealised capital gains comes in, we are moving assets out of super altogether. We can’t afford to pay over 46% tax which is what it will be in our case based on the last 2 year’s returns. It is a tripling of tax and we don’t pay that much outside of super either. We will have effectively lost any super concessions which I would hope was not the intention of this legislation, but it is a reality for some of us, intended or not. There is absolutely no way that I would place my money in an industry fund either. I don’t understand why the Labor party seems intent on killing the superannuation system it created and no new objective is going to change the outcome either.
ASFA is certainly enjoying some time in the sun given it is likely to have the ‘political ear.’ The tribalisation is really tiresome. Individuals that are suited to SMSFs aren’t likely to be dissuaded by (Industry Fund) lobbying to switch out. They chose the investment structure for a reason which is not likely to be diminished by all this noise. If anything, investors will loose faith in the super system and vote with their feet or more so with their capital. Once capital is out of super, the war is over. The current parliament has been in for 19 months and already we have seen a carve out for APRA Funds on NALE and Division 296 – 2 big pieces of legislation – so there is no subtlety re the preferencing.