For some of them, their income is cyclical, and farmers are the obvious standout. For the past three years, they have enjoyed bumper seasons due to heavy rainfall (three successive La Niña events) and high global food prices, with the Australian Bureau of Agricultural and Resource Economics and Sciences predicting the nation’s agricultural output to be a record $90 billion in the 2022–23 financial year.

On the back of these profitable seasons, the price of agricultural land has soared, enjoying increases approaching 20 per cent in 2022 and 2021, respectively, and tipped to slightly exceed 10 per cent this year, according to a report by agribusiness specialist Rabobank.

But the same report has a sober warning, expecting a slowdown in price growth as demand for farmland drops due to current high prices, rising interest rates and the expected onset of drier weather (an El Nino event).

For farmers, this prediction coming true would be just another stark reminder of the cyclical nature of their industry. It explains why they can be asset rich and cash flow poor – and why they will be gravely disadvantaged by the proposed $3 million cap on super balances above which earnings will be taxed at a higher rate.

How this could play out is well illustrated by Marco and Rosa, a married couple in their late 50s, who had to come to terms with the fact their two boys did not want to work the land. Consequently, they acquired the property in their SMSF and leased out the farm.

In 2021, the property was valued at $1.8 million, and the members’ balances were $2 million each (they also own equities, other property, and cash). Just one year later, the farmland increased in value to $3.94 million. Meanwhile, the leasing rate only enjoyed a slight increase.

Fast forward to the 2025–26 financial year; cropping prices are high as is demand for farmland, with the property now worth $4.8 million. The following year is disastrous – a devastating drought accompanied by a locust plague. The immediate outlook is dire with market conditions determining lease payments need to be deferred.

The bulk of Marco and Rosa’s fund income has dried up at the very time an ATO assessment arrives.

A significant portion of their member balances are made up of unrealised gains, largely based on the value of their farm. The increase in value in the 2026 financial year has triggered the additional tax assessment even though the property has not been sold.

This is not the end of their problems. When the property is finally sold, the fund may incur a significant CGT liability. As ownership has exceeded a year, the fund is entitled to a one-third CGT discount, making the effective tax rate on the taxable gain 10 per cent, net of disposal costs such as sale and settlement costs. But the CGT payable will be in addition to any the tax levied under the proposed $3 million cap.

The additional tax is levied at a flat rate of 15 per cent on earnings (which for the purposes of this new tax will include increases in asset values that occur during the income year) corresponding to the proportion of an individual’s balance that is greater than $3 million.

The result is the payment of tax on a proportion of earnings that includes capital gains for which no value has yet been realised. The CGT discount and disposal costs are not considered. Where a decline in value occurs, although losses are calculated, these are only of benefit if a liability to pay this tax exists in a future income year.

The tax assessed under this proposal is a personal liability. It assumes the member can pay the tax personally. Although they can elect to have their superannuation fund pay the bill, the kicker is that any withdrawals (including the payment of these assessments) will be added back and included in the calculation of earnings under the proposed formula.

Marco and Rosa encapsulate why this proposed new tax on earnings where super balances exceed $3 million is iniquitous. They highlight why farmers, indeed, any small business owners or professionals, may face considerable stress and liquidity difficulties in meeting what could be a crippling tax bill for an unrealised capital gain.

In many instances, forced asset sales will be the only solution. At the very least the ripple effect of this new tax on the broader community could be considerable and certainly seems likely to exceed Treasury’s initial estimate of 80,000, especially as indexing is currently off the table.

But there is alternative where earnings could be calculated for the purposes of this new tax that would not involve taxing unrealised capital gains and the double taxation of capital gains. Instead, the tax could be based on the actual taxable super earnings attributable to a member during the income year rather than the proposed calculation that also includes unrealised gains.

It is not a difficult task for SMSFs to provide the relevant information to the ATO to enable this to occur. For super funds that are unable to provide this information, the tax could be based on a notional deemed earning rate for the income year.

Undoubtedly, there are benefits in applying the same approach to all funds, which is a guiding principle underpinning the government’s current approach, but this should not come at the expense of fairness and simplicity.