The Division 296 tax will heavily impact farms held within SMSFs while ignoring the fact they were not originally purchased to generate capital gains, a specialist SMSF adviser has warned.
RSM Australia SMSF services director Katie Timms said the tax, which applies to the earnings of funds with balances over $3 million, will impact the current-day owners of farms and the next generation.
“I can tell you farmers are going to be disproportionately impacted by this because there’s so many impacts of market movements on their assets and sometimes they don’t recover,” Timms said during a presentation at the SMSF Association National Conference 2024 in Brisbane today.
“[Farms] are not an asset that we are generally holding to make a capital gain on down the track. It’s something that is quite often passed to the next generation.
“We also don’t generate the same income as we do in another asset just because market value goes up,” she said, adding many farms hold high-value assets but produce low income yields.
“It’s great if you can sell the asset and crystallise that capital gain, but not if you want it to go to the next generation.
“This is going to be a significant impact for farmers. We are already seeing some pull assets out. They feel personally attacked by this and are already really upset about a lot of things and this one is not helping.”
She noted while some farmers were preparing to withdraw assets from their SMSF, the process was not easy and depended on how they were acquired and who they will go to.
“How did we acquire the property because if there is segregation, we’ve got issues with stamp duty so we need to know what kind of lingering problems we have. What things have we tied ourselves to that we now need to unwind?” she said.
“How do we want to get it out? Are we going to buy it? Is the next generation going to pay cash for it? Are we vesting it? And then where do we actually want it to end up because vesting it out to mum and dad may not be where we want it to go.
“If we want it to go to a child, a trust or another SMSF, okay, we have to weigh up how much tax that is going to cost and how many years have we got for a payback period.”
