Super changes will hit those with millions but they say the impact could be devastating

In the diffuse light of a foggy June morning, father and son Murray and Tom Norman keep warm with the day’s first critical task: feeding the sheep.

Tom, 24, transfers the grain from a silo, into a truck, to a spreader, before finally pouring a narrow line of feed onto the bare soil of a nearby paddock, where it’s devoured by the hungry merino flock.

The job could be a metaphor for running a successful farm: Store grain from the good seasons so there’s enough feed for the dry ones.

“What you need to do is to have enough income for the bad years,” Murray says.

The farmers’ in-built tendency to plan ahead might just be why the Normans are so opposed to changes to Australia’s superannuation scheme.

After spending their working lives on the family property, Murray’s parents, Ray and Bev, are preparing to move into the nearby town of Junee. 

“Mum and Dad are moving off-farm,” Murray says. “It’s been a real blessing of super to be able to put money aside so they can have a house in town they can actually live in.”

What are the super changes?

The ALP is trying to pass some of the biggest changes to Australia’s superannuation system since compulsory superannuation was legislated by the Keating government in 1992.

The scheme was intended to reduce the number of people reliant on government-funded pensions — and that’s worked very well, says Robert Bruenig, a professor of economics at the Australian National University (ANU).

“About one-third of people don’t rely on the pension system at all … reliance on the pension has definitely gone down because of superannuation,” he says.

Superannuation earnings are currently taxed at 15 per cent.

But under legislation championed by Treasurer Jim Chalmers, the 15 per cent rate remains until a person’s super balance reaches a $3 million threshold — at which point a higher 30 per cent rate will kick in.

The changes will initially affect about 80,000 people, and will have a bigger impact on those with larger super balances.

More than 5,000 people have balances of more than $10 million, and the ATO says there are at least 30 Australians with super balances worth more than $100 million. The earnings on those funds are presently taxed at 15 per cent. 

It’s estimated that the concessions cost the government about $2.3 billion each year in lost tax revenue.

“The problem with the super tax structure is that a huge proportion of it goes to people who don’t need any help in retirement,” says economist Matt Grudnoff from the Australia Institute.

A tough decision

Bev and Ray Norman have a combined super balance of about $5.5 million.

Assuming their fund’s value continues to grow, they’ll soon be impacted by the changes.

The money isn’t only being used to fund their retirement. The plan is for it to help fund the inheritances of their other children without necessitating selling off the family farm.

Farms, like property, can form part of a self-managed super fund.

“We’re getting assets in super so that can provide for Mum and Dad off-farm and they can be looked after and it’s not drawing on the farm,” Murray says.

Income from the family property, Glenbrook, is already spoken for: It’s mostly invested back into the farm to pay for expenses like equipment, maintenance, stock and feed.

The super fund invests in agricultural assets like wind turbines and a herbicide business, which will be affected by the proposed super laws in another way. The new tax rate will also apply to unrealised gains — that’s the growth in value of those businesses, unrelated to the income they actually generate.

“I did the calculations,” says Murray, who has an accountancy degree.

“Mum and Ddad will be up for an extra $120,000 a year.

“The super fund can’t afford to do that. We’re in a situation where the farm will have to fund that.”

He has a dire prediction.

“If the government starts taxing those capital gains that are unrealised, it just means we won’t be able to afford to keep on running the farm and we’ll have to sell,” Murray says.

Glenmore has been in the family for 115 years. If all goes to plan and Tom Norman takes over the property from his dad, he’ll be the fifth generation to do so.

“My vision is to see family farms continue to thrive for generations to come in a profitable and sustainable way,” Tom says.

“That means not selling off land — being able to keep that land and pass that on to the next generation.”

To avoid having to sell parts of the farm, Murray Norman says the agricultural assets will need to be withdrawn from his parents’ super fund. But there would be significant tax penalties for doing this.

Murray says he has spoken to other farmers who’ve placed their farms inside self-managed super funds and are now working out if it’s possible to extract them. 

“They’re now in a situation where they’re working out, if these changes come in, what they can actually do … if they’re looking at pulling it out, it’s going to cause real-world problems.”

Call for an amnesty

Tax expert Professor Bruenig says he is very sympathetic to the plight of farming families like the Normans who have placed businesses, or even farms, inside the super system.

“The government set up rules, people have been playing by the rules, and now suddenly the rules are changing,” says Professor Bruenig, who is the director of the ANU’s Tax and Transfer Policy Institute.

He says the government should provide a 12-month amnesty.

“Anybody who wants to pull those assets out of superannuation funds and run them outside of the super fund will not pay any tax penalty for doing that,” he says.

“Normally, if you pull money out of superannuation before retirement, there’s a tax penalty.”

The ALP’s super legislation is expected to go before the Senate later this year.

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