Farmland has been one of the more resilient asset classes of the past decade, and it’s easy to see why SMSF trustees with a farming background keep asking whether the family property belongs inside super. It’s also one of the more complicated assets to get right, and the issues tend to cluster around the same handful of themes, whether you’re a trustee, an adviser, or an auditor who needs to know what evidence should be sitting in the file. 

It starts with the gateway question. Whether land qualifies as business real property comes down to whether a genuine primary production business is actually run on it, not just whether it looks like a farm. Get that wrong and everything built on top of it, from the related-party purchase to the in-house asset exclusion, comes down with it. 

That purchase is one of the few situations where an SMSF can acquire an asset from a related party at all, but the exception only holds on the right terms. The price has to reflect genuine market value, and the paperwork has to show it, an independent valuation dated at or close to the transfer rather than a figure carried over from the vendor’s books, a proper contract of sale rather than an informal family arrangement, and trustee minutes recording the decision. Skip any one of those and the transaction starts to look like exactly the kind of related-party dealing the rules exist to catch. 

Valuation deserves attention well beyond the point of purchase, because every fund asset has to be reported at market value each year, and rural land is genuinely harder to value defensibly than most other assets in a fund. Sales are thin in many districts, no two properties are quite like-for-like once soil quality, topography, water access and frost risk enter the picture, and seasonal or commodity swings can make a short-term peak look like sustainable land value if nobody separates the two. A simple local agent appraisal letter often doesn’t hold up to that standard on its own. What tends to work is valuing the components separately, arable and non-arable land, improvements such as irrigation, sheds and fencing, and any water entitlements, then reconciling each against comparable sales rather than presenting one blended figure for the whole title. Specialist rural valuers also lean on metrics built for agricultural land rather than general property benchmarks, capitalising the income the land can produce or, where a long-term lease is in place, the net rent it generates. None of that is a one-off exercise either. A full independent valuation every one to three years, desktop evidence in between, and an immediate refresh after anything material such as rezoning or a natural disaster, keeps the evidence current rather than scrambled together at audit time. 

Arm’s length treatment doesn’t stop once the property is inside the fund. Every dealing between the fund and a related party, a lease included, has to be conducted as if the parties were genuinely at arm’s length, and a below-market lease to a family member farming the land is a compliance breach in its own right before any tax question arises. A lease that will stand up needs commercial rent, a mechanism for reviewing it periodically, a fixed term with renewal options rather than an informal rolling arrangement, a clear allocation of outgoings, and default provisions actually enforced rather than waived quietly in a lean year. Where rent isn’t set at market, the consequences can extend well past the shortfall itself, particularly where the arrangement is tied to the asset, in which case the exposure can touch all the income that asset produces, including future capital gains. 

Borrowing is worth a mention too, given residential property is now carved out of limited recourse borrowing arrangements from 10 August 2026. Farming, grazing and horticultural land used in a genuine primary production business sits outside that change, but the usual borrowing discipline still applies, a single acquirable asset in its own holding trust, recourse limited to that asset, and borrowed funds directed to repairs and maintenance rather than improvements, a live issue wherever irrigation, sheds or fencing are being upgraded rather than maintained. 

None of this is exotic. These are the recurring questions trustees, advisers and auditors run into with rural property, and a fund typically has three things to show for it, a genuine business on the land, a valuation that would stand up to scrutiny, and a lease that behaves like a commercial one in substance as well as on paper. 

Author: Tim Miller, SMSF Technical & Education Manager, Smarter SMSF