‘Unfair’ for farmers, but Chalmers to push on with super tax

The Treasurer says the policy was taken to the election and would be taken to the Senate as is – despite mounting opposition to a tax on unrealised capital gains.

The Albanese government is pushing ahead with a tax on unrealised capital gains on assets held in superannuation funds over $3m despite a chorus of critics calling for the policy to be wound back.

If the Bill passes the Senate, 3500 farmers are expected to be impacted from day one, with another 14,000 likely to be caught up in the scheme in coming years should their assets increase in value.

Treasurer Jim Chalmers said the policy was “a modest change” to lessen the concessional treatment of superannuation balances held in the largest superannuation accounts.

The legislation was discharged in February but is expected to be reintroduced when parliament resumes in July with the same increased tax on superannuation balances over $3m, taking the rate from 15 per cent to 30 per cent, and most controversially, a tax on unrealised capital gains.

There are fears families holding farms in self-managed superannuation funds will be forced to sell their properties that were intended to be passed onto future generations to pay their tax liabilities, particularly if property prices continue their upwards trajectory.

Farming property prices have well-outpaced metropolitan and industrial property values over the past two decades, rising more than 250 per cent compared to about 150 per cent for housing and industrial property, according to The Australian Property Institute.

The $3m starting point for the tax on unrealised gains will not be indexed, leading critics to say many more Australians will be ensnared in the scheme than first intended.

Federal Treasurer Jim Chalmers says the mooted tax changes to superannuation are “modest” and will only affect 0.5 per cent of Australians. Picture: NewsWire / Martin Ollman

Dr Chalmers has said the changes were needed to help pay for other priorities promised during the election campaign, including Medicare, tax cuts and budget repair.

Superannuation lawyer Phil Broderick said the tax’s treatment of farming assets held in self-managed super funds was a prime example of the “unfairness of the system”.

“If you look at normal taxing principles, you pay tax when you have the money – so income tax when you derive the income or capital gains tax when you let go of the asset – so you have the money to pay the tax,” Mr Broderick said.

“This proposed regime is taxing unrealised growth. You don’t want a tax system that forces you to sell an asset.”

But economist Chris Richardson said despite the tax’s flaws, the change would make superannuation fairer and more sustainable.

“This new policy is not all great, yes there is a list of things that should happen in super and if they did you wouldn’t need to do what they are talking about here, but it is also fair to say that SMSFs or the super system in general, and particularly through SMSFs, wasn’t designed to be a farm transfer mechanism across generations, that wasn’t the plan. The fact it’s being used that way is a reminder of the ways the system is broken.,” Mr Richardson said.

“I cannot disagree with the unfairness (for those with farms held in SMSFs), but the bigger picture is more complex, and on balance I would be happy to see this policy change go through.”