Farmers dread tax on shifting land values

Farmers who own their land through super are worried the Albanese government’s proposed changes could bring tax on paper-value changes of volatile land prices.

Farmers fear being unfairly treated under plans by the Albanese government to make people with large super fund balances pay tax on notional gains in asset values. Picture: Colin Murty

Farmers who own their land through super are struggling to come to terms with the Albanese government’s proposed changes that could see them paying extra tax on changes in the paper value of hugely volatile land prices.

Perth-based Katie Timms, national director of superannuation and SMSF services at RSM Australia, said she estimated about 10 per cent of the about 4000 clients with self-managed super funds would be affected by the rules, which would not come into effect until mid-2025.

Ms Timms said many of her farming clients were particularly worried about how the sometimes wild fluctuations in the value of their farms held through super might mean for their tax liability year to year.

She questioned what would happen if a farmer who owned their land through their SMSF saw their super balance soar to $4m as values jumped – and then incurred additional tax – only for some catastrophic event, such as drought, fire or flood, see that value halve in the space of one financial year.

“Farm land values have probably tripled in the last couple of years – which is unheard of. We are just very conscious that we’ve had very good weather years, but it doesn’t take a lot for those prices to come back either,” Ms Timms said.

It was unclear if the tax paid in previous years on the change in value above $3m would then be paid back by the tax office.

“The more you think about it, the more questions you come up with,” she said. “I understand what they are trying to achieve, but the administrative aspect seems like a nightmare. They have come up with a simple solution, but it’s almost unsustainable in the long term, and this quick fix could lead to more and more problems down the track.”

Deputy Prime Minister Richard Marles on Friday could not answer repeated questions about Treasury’s current formula that would, for the first time, introduce an annual cash tax on the unrealised gains in the values of investments such as property or shares.

Mr Marles dismissed concerns that asset-rich but cash-poor super savers could be placed into a difficult position when asked to pay additional tax, labelling the issue as “smoke and mirrors” from the opposition.

“Nobody is forcing anyone to sell anything,” he told Sky News.

Scott Montefiore, Queensland director of wealth at advisory firm William Buck, said “the biggest concern is the way the Treasury fact sheet refers to earnings as being an increase in the total super balance, which could include an increase in the value of the property”.

“So the owner won’t get much additional rent, but they could get quite a bit more tax, which they might not have the cash to pay for,” Mr Montefiore said.

“That means they might have to take money from elsewhere in their personal affairs, or reduce interest in their own business, or sell assets to make further contributions into the fund,” he said.

“This is one where you’d think people would be happy to see balances above $3m taxed more, but actually not, because everyone does aspire to grow their wealth. I just think making changes to the system erodes confidence in the system, even if they are well intended.”

LDB Group principal and SMSF specialist Rohan Mansfield estimated about 30 of the roughly 500 super funds he advises would have nest eggs of over $3m and would therefore be caught up immediately in the rules were they applied now.

Mr Mansfield said his clients with larger balances included medium-sized business people; for example, owners of a nursery, an electrical company or a solar company. “They could be plumbers if they own their business, landscape gardeners who have a warehouse, or a wholesaler of fish.”

Mr Mansfield said he wouldn’t describe reducing tax concessions for very large super balances as “unreasonable” in theory given less than 1 per cent of savers would be affected.

But he added: “Clients who have this issue (of paying tax on profits they haven’t yet made) would say it is unreasonable.

“The wider issue is they don’t know what’s going to happen in 10 years to their super, and that’s where it does make it hard.”