DAFF deputy secretary Matt Lowe and assistant secretary Melissa Brown at yesterday’s Senate Estimates hearing: Treasury did not consult DAFF before the budget.

THE Albanese Government’s Treasury did not consult with the Department of Agriculture Fisheries and Forestry before proposing capital gains tax and trust changes in the Federal Budget that could negatively impact farmers.

In Senate Estimates yesterday, DAFF executives confirmed that Treasury did not consult with them or the Australian Bureau of Agricultural and Resource Economics and Sciences pre-budget on the likely impact on farmers of budget measures affecting trusts, capital gains tax and the Farm Management Deposit scheme.

DAFF executives said they had to initiate discussions with Treasury on the likely impacts of the changes on agricultural programs after the 12 May budget announcement and this had only been done this week, just days before legislation was presented to parliament.

Legislation supporting the tax changes, with some provisions that are due to commence on 1 July this year, was today automatically referred to the Senate Economics Legislation Committee, with the inquiry to report by 22 June.

DAFF agrees on importance of ag programs

DAFF secretary Victoria Anderson.

In the Senate Rural and Regional Affairs and Transport Legislation Committee hearing yesterday, Liberal senator Paul Scarr gained acknowledgment from DAFF first assistant secretary farm resilience division Melissa Brown that a lot of primary producer businesses are held in family and discretionary trusts.

“The numbers I have seen indicate that potentially at least half are held in those sort of structures,” he said.

DAFF secretary Victoria Anderson suggested Treasury would be the “best source of truth” for that information.

Ms Brown said: “In terms of your question ….. we don’t actually look at what numbers are impacted, so that is the authority I guess of the Treasury and the ATO, to look at what the impacts are.”

Ms Brown also agreed with Senator Starr that access to the Farm Management Deposit scheme is linked to the ownership structure of a farm, and she said it gave tax concessions to enable farmers to build cash reserves in high income years so it is available in low income years.

Ms Brown also agreed with Senator Scarr said that the FMD scheme was a very important scheme to help farmers survive the “up and downs’ of the farming cycle, including drought periods, and important for the resilience of farming communities.

Potential ‘disconnect’ with Farm Management Deposit Scheme in tax changes

Senator Paul Scarr: a disconnect between tax changes and FMD scheme eligibility.

However, Senator Scarr said a company was not eligible to participate in the FMD scheme, and this, combined with rollover relief associated with proposed trust changes in the budget showed a “disconnect” with current FMD eligibility requirements.

According to the ATO, companies and trusts themselves are not eligible to participate in the FMD scheme, but individual primary producers operating as sole traders, partners in a partnership, or beneficiaries of a primary production trust can participate.

Under its budget changes, the Federal Government is proposing a 30 percent minimum tax on discretionary trusts from 1 July 2028. It is proposing that rollover relief be available for three years from 1 July 2027, to assist small businesses and others that wish to restructure out of a discretionary trust into other arrangements, such as a company or a fixed trust.

Senator Scarr said family-owned farm trusts that choose to rollover to a company structure because of the budget tax changes would not then be able to participate in the FMD scheme.

No formal meetings with Treasury on tax changes

When Senator Scarr asked if the department had considered the impact of this on farmers, Ms Brown said the department had just commenced discussions with Treasury.

“We haven’t had a formal meeting with them, we are looking at preparing that meeting and having that, in terms of how FMDs, the Farm Management Deposit Scheme operates and the impacts there may be.

“But that is a consideration that needs to be undertaken by Treasury in terms of the new measures that they have put forward,” she said.

Nationals senator Ross Cadell said there was probably about $6 billion held in FMDs and he wanted to know if farmers lost access to their FMD funds if they rolled over into a different structure.

Ms Anderson said the coming discussions with Treasury would include addressing trust transitional arrangements and FMD impacts. She was fairly confident Treasury has been in contact with the National Farmers Federation which had raised some of these issues.

“I absolutely undertake to do that with Treasury and in consultation with industry over the coming few weeks.”

Ms Anderson said it was important for Treasury to work up tax changes “discretely and confidentially.”

“It’s very important we respect that process.”

Senator Scarr said his concern was the DAFF secretary is actively involved with Treasury so that they understand the impact on the ground of family farm ownership structures changing.

What is primary production income…

DAFF Agriculture, Fisheries and Forestry Policy Group deputy secretary Matt Lowe said the budget changes included an exemption for discretionary trusts for primary production income “and obviously therefore there will be matters for farmers to decide whether it’s better to stay in a discretionary trust to move to a company outcome.”

Liberal Senator Richard Colbert said he was also concerned that people that dealt with DAFF had ended up “with the rough end of the pineapple” because the department had not been consulted.

Mr Lowe said DAFF does talk with Treasury regularly and it estimated the cost of the FMD Scheme annually in consultation with DAFF. Ms Brown said the FMD data is held by the banks and also working closely with Treasury and the ATO in relation to FMDs.

Ms Anderson said the discussions with Treasury would include the impacts of trust transitions, FMD Scheme eligibility and company structures, and primary production income definition, to ensure there would be “no unintended consequences” for DAFF programs.

“We haven’t received any representations to date from our stakeholders in relation to this,” Ms Brown said.

“They’re coming,” the DAFF representatives were told.

Mr Lowe confirmed there were no consultations with Treasury prior to the budget in relation to FMDs.

“No, we wouldn’t ordinarily consult on taxation measures; that’s solely the purview of the Treasury Department.”

And Mr Lowe and the secretary also confirmed the Treasury Department did not approach DAFF to discuss these issues in advance of the budget.

Senator Colbert said he understood why there would not be outside consultation, but there should have been consultation between agencies. The secretary said she could not speak to whether there was consultation between ministers, but consultation in “the tax space is usually held fairly closely by Treasury.”

Ms Brown said discussions on the budget changes with Treasury had been initiated by DAFF.

“So you reached out to them, they didn’t reach out to you,” Senator Scarr said.

“I’m a bit surprised there wasn’t consultation beforehand … because this a really important issue.”

In relation to discretionary trusts changes under the budget, Mr Lowe said he understood that income distributed from a primary production enterprise within a discretionary trust is exempt from the new 30pc minimum tax.

“We are aware that there have been issues raised by the secretary in relation to the discretionary trust distributions and more broadly …. which is effectively the transfer of land, the sale of primary production land and of discretionary trust exemptions or other concessions within the tax system to the sale of that land .. we understand is a key issue.”

Secretary Anderson intervened and said the department is aware that the transfer of land through trusts has been raised as a potential issue by the agricultural sector, “but exactly how that plays out is so specific to the circumstances of a range of different business structures I would be very worried if we did that that we would mislead you.”

Senator Scarr asked to what extent was DAFF considering the impact of the budget tax changes in relation to other non-traditional streams of income on farms – such as resource company licence fees, wine sale or wind farm income.

Mr Lowe and the secretary said DAFF would discuss these primary production income issues and their likely impacts on department programs with Treasury next week.

Assistant ag minister happy with timing of consultation

Assistant Minister for Agriculture Anthony Chisholm in Senate Estimates yesterday: no problem with lack of Treasury consultation.

Nationals senator Matt Canavan said it seemed remarkable given the potential impact of the tax and trust changes that Treasury didn’t seek basic statistics from the premier agricultural advisory body, ABARES. He asked assistant Minister for Agriculture Anthony Chisholm why didn’t the government seek ABARES advice “about its broken promises on tax.”

“That would be something that’s be best put to the Treasury Department.

“I think the department have talked through from questions from your colleagues about the role that they’ve played and they’ve taken on board some feedback that they will be able to follow up in their engagement – that sounds entirely appropriate as a way for government to function,” Mr Chisholm said.

Deputy chair of the Senate’s Standing Committee for the Scrutiny of Delegated Legislation South Australian Liberal Senator McLachlan told Sheep Central farming communities do not have the same level of resources as those available in urban areas.

“Therefore, consultations must be specifically tailored to the needs and circumstances of the agricultural sector.

“I support any Senate inquiry with well-considered terms of reference that recognise and examine the vital importance of the farming community,” he said..