SMSF Association Media Release
The SMSF Association has thrown cold water on “research” by the Association of Superannuation Funds of Australia (ASFA) claiming that only one 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 says 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 which may be impacted by this
proposed law is not valid.
“ATO income tax return data has limited application for substantive data analysis due to the way the tax return data is collated and reported
“It’s not just farms – it applies across the SMSF sector.
Individual tax returns are an unreliable data source from which to draw inferences on the asset holdings or liquidity of SMSFs.”
Burgess says 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 – “it’s a common vehicle used by Australian farm businesses to manage
assets and use agricultural land to provide retirement income.”
A common strategy is 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. How they choose to receive their income will also vary greatly, including wages, directors’ fees, dividends, and trust distributions.”
Burgess says that although the number of farms affected is unavailable, research by the University of Adelaide commissioned by the Association definitively shows that this proposed tax could have a negative impact on up to 50,000 SMSF members, with the mean additional tax liability exceeding $80,000 in 2020-21 and 2021-22.
The University of Adelaide used financial data from over 722,000 SMSF members (two thirds of the total SMSF member population) to model the impact of the proposed tax assuming the tax had been
introduced on 1 July 2020 and applied for the 2020-21- and 2021-22-income years.
“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.”
“For those farmers affected, this could be devastating. What must be remembered is that the farming community is prone to cyclical income, with no income or losses in years where significant events occur, such as drought, floods, and fire.
“This 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 personal circumstances.”
The Association also rejected claims made by some 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.”
‘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.”
Burgess concludes that the tragedy of this proposed tax is that it’s a solution looking for a problem.
“The fact is the ability to attain significantly high balances in superannuation will be inhibited by existing policy settings.
“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.”