Farmers still nervous about proposed tax reforms

LANA BEST

Proposed tax changes continue to concern farmers in the lead-up to the Australian Federal Budget on May 12, with the reforms likely to affect business liquidity and succession planning for many if they are realised.

Following industry pressure late last year the government announced a major backdown on its proposed "Better Targeted Superannuation Concessions" (the “Super Tax”) which would have taxed unrealised capital gains on superannuation balances over $3 million.

It agreed to index the $3 million threshold to prevent "bracket creep" from capturing more family farms as land values rise and it devised a new two-tier system where earnings on balances between $3 million and $10 million are taxed at 30 percent, while balances over $10 million face a 40 percent rate starting on July 1, 2026.

Now treasurer Jim Chalmers has signalled even broader potential changes that could once again target farmers as the government seeks to increase its revenue by billions.

This week reports surfaced that the government is considering a minimum 30 percent levy on trusts, a common strategy used by farmers for business operations and income distribution.

While a "carve-out" for farmers is being discussed to protect family businesses, industry leaders are seeking urgent clarification to ensure these changes do not penalise intergenerational farm transfers.

The government has also hinted at reducing the general 50 percent Capital Gains Tax discount to between 25-33 percent, further impacting succession planning and potentially making farms unviable when transferred between generations.

TasFarmers president Nathan Cox said amid the growing speculation about capital gains tax reforms there was no clear policy or detail from the federal government. 

“The lived reality is land prices may have tripled, but margins remain thin and costs are volatile. We’re facing a great deal of uncertainty right now,” Mr Cox said.

“We’ve seen a significant rise in farm values, but commodity prices haven’t kept pace. That means farmers are asset-rich on paper, but cash flow remains incredibly tight.

“This creates a dangerous disconnect. If capital gains tax settings fail to recognise that reality, the government risks penalising farmers in practical terms,” Mr Cox said.

Mr Cox said capital gains, in many cases, are all farmers have left after a lifetime of work. If that is taken away, or it’s made harder to pass on to the next generation, the future of family farming would be at risk.

“Farm succession is the backbone of Australian agriculture, and right now that process is already under pressure,” he said.

“It’s tough enough for farmers now. We’re struggling to get succession happening, and that’s something we simply cannot afford to lose.”

Mr Cox said the potential impact of removing or weakening current tax concessions would be significant.

“Government needs to recognise that the family farm is a fundamentally different asset. It should not be treated the same as an investment sold in the ordinary course of business,” Mr Cox said. 

“If farmers are not carved out, it becomes less attractive to buy, retain, and pass on farms. With margins already so slim, that could accelerate consolidation and reduce family ownership across the sector.”

TasFarmers said it stands with the National Farmers' Federation in calling for clarity and common sense when it comes to proposed changes to capital gains tax.

It urged the government, including Treasurer Jim Chalmers, to work closely with industry to ensure that any changes support, not undermine, the future of Australian farming.