Concerns around farm succession

The current debate over proposed changes to capital gains tax concessions has largely focused on taxation policy.

However, farming groups say a much bigger issue sits beneath the discussion - whether the next generation will be able to take over the family farm.

The issue has emerged as the National Farmers' Federation raises concerns about proposed changes to capital gains tax concessions that have passed the House of Representatives and are now being considered by the Senate.

While much of the public debate has focused on taxation policy, the NFF argues a broader issue is being overlooked  -  the potential impact on farm succession and the transfer of family businesses between generations.

The federation says attention has centred on tax reform, while receiving less scrutiny as a succession issue facing family farming businesses.

According to the NFF, eligibility thresholds underpinning some small business capital gains tax concessions have remained largely unchanged since 2007 despite substantial increases in farmland values across Australia.

At the centre of the debate are asset-value thresholds used to determine eligibility for some concessions. Farm groups argue those thresholds have failed to keep pace with the dramatic increase in farmland values over the past two decades, potentially capturing family farming enterprises that were never intended to be excluded.

National Farmers' Federation President David Jochinke said farming businesses were increasingly being caught by rules that had not kept pace with changes in land values.

"The value of farmland has increased significantly over the past two decades, but the thresholds have not," he said.

Farmers who may once have qualified for concessions can now find themselves outside eligibility despite no fundamental change to their business operations.

The concern is particularly relevant in agriculture because farming businesses are often asset-rich but cash-flow constrained.

A dairy, beef ,sheep  or crop farm may have a land value worth many millions of dollars, yet generate relatively modest annual profits compared with businesses in other sectors. Rising land prices can therefore create paper wealth without necessarily increasing available cash flow.

Farm succession has long been one of the most complex issues facing Australian agriculture.

Many family farms are transferred between generations rather than sold on the open market. The process often involves balancing the interests of family members, financing business continuity and maintaining the viability of the enterprise itself.

The challenge becomes greater as farm values rise.

For younger farmers seeking to enter the industry, purchasing land has become increasingly difficult. For established farming families, transferring ownership can involve increasingly complex financial and legal arrangements.

The NFF argues that small business tax concessions were originally designed to support business continuity and succession but may no longer adequately reflect the scale and value of modern agricultural enterprises.

The issue extends beyond taxation.

Australian agriculture is undergoing significant structural change. Farms are generally becoming larger, more capital intensive and more sophisticated in their business structures. At the same time, land values continue to rise, particularly in regions with reliable rainfall, irrigation access and strong agricultural productivity.

Tasmania has been part of that trend.

Strong demand for dairy, beef, sheep and mixed farming properties has contributed to substantial growth in farmland values over recent decades. While higher values strengthen farm balance sheets and borrowing capacity, they can also make succession planning more complicated.

The debate highlights a broader question confronting Australian agriculture: how can farming families successfully transfer businesses to the next generation when the value of those businesses continues to grow faster than many of the policies designed to support them?

The debate may be about tax, but the underlying issue is whether the next generation can afford to take over the family farm.

For many producers, the challenge is no longer simply building a successful farm business.

It is ensuring the next generation can inherit it.