Div 296 tax impact on farms refuted

SMSF Association ASFA farms $3 million superannuation earnings tax

The SMSF Association has rejected claims few farms in SMSFs will be affected by the proposed superannuation earnings tax as the assertion is based on incorrect ATO data.

Research claiming only 1 per cent of SMSFs with balances exceeding $3 million have farm-related income was drawn from incomplete ATO data that is unreliable when assessing the asset holdings of funds, according to the SMSF Association.

The claim was recently made by the Association of Superannuation Funds of Australia, which used ATO income tax return data from June 2021 to state 0.5 per cent of SMSF members with farm-related income would have more than $3 million when an additional 15 per cent earnings tax came into effect.

SMSF Association chief executive Peter Burgess questioned the claim, noting farms and their related businesses were often held in ways not reflected in income tax data.

“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 which may be impacted by this proposed law is not valid,” 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.

“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.”

He added that while exact figures for farming properties held in SMSFs were unavailable, the National Farmers’ Federation stated in its submission to the government on the tax that anecdotal evidence indicates more than 30 per cent of Australian farms could be held in an SMSF.

It was common to hold a farming property in an SMSF with the business operating through a different structure and receiving only leasing income, but not receiving income from the business or farming operations, he said.

“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,” he said.

He pointed to research commissioned by the association and conducted by the University of Adelaide using financial data from over 722,000 SMSF members that showed the 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.

“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.

“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.”

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