Advice on an ever increasing Land Tax please.

Discussion in 'Accounting & Tax' started by GoneFishing, 20th Dec, 2018.

Join Australia's most dynamic and respected property investment community
Tags:
  1. GoneFishing

    GoneFishing Well-Known Member

    Joined:
    13th Jul, 2015
    Posts:
    72
    Location:
    Melbourne
    Hi all,

    Currently, my Land Tax bill is $20,425 on $2.65M(3 investment properties - all houses). We are considering converting our existing PPOR into an IP also and buying a new PPOR . However, that will increases total assets to 4 IP's and will push up total land value to $3.85M. Land Tax would then skyrocket to $44,100!

    I can't justify paying this money to the Government every year.

    Idea's anyone? Existing PPOR is paid off fully. All houses are jointly owned with my wife(Yep, I know we stuffed up and should have had them in individual names, but too late now).

    Looking for some ideas please.

    Thanks.
     
  2. Tofubiscuit

    Tofubiscuit Well-Known Member

    Joined:
    1st Nov, 2018
    Posts:
    1,479
    Location:
    Sydney
    I will buy one of the properties off you for $1, that way you will have a better cashflow and a tax asset on your hands
     
    TheGreenLeaf likes this.
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,666
    Location:
    Australia wide
    You have little choice other than the live in the most valuable one.
    You could consider disposal - spousal sales included.
     
    See Change likes this.
  4. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    27,095
    Location:
    Sydney or NSW or Australia
    Make it the spouse's problem? or sell the other half? :oops:
     
  5. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    10,256
    Location:
    Australia
    Sell and buy shares. Diversify to other states. Different entity (state by state).
     
    wylie, paulF and Terry_w like this.
  6. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,130
    Location:
    03 9877 3000
    I think Terry is suggesting rearranging the ownership of the properties so your spouse owns some and you own some. This would reduce how the land tax is calculated.

    Properties can be transferred between spouses in Victoria without incurring stamp duty. Capital gains tax may still apply. I'd suggest you sit down with your accountant to look at the options and model some different outcomes.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,666
    Location:
    Australia wide
    Unfortunately the duties act was recently amended and something like this will result in normal duty being applied.
    Tax Tip 161: The new Duty on Spousal Transfers in VIC Tax Tip 161: The new Duty on Spousal Transfers in VIC

    Also accountants cannot legally advise on state legislation so they cannot give advice on land tax.
     
    craigc likes this.
  8. GoneFishing

    GoneFishing Well-Known Member

    Joined:
    13th Jul, 2015
    Posts:
    72
    Location:
    Melbourne
    How about if I setup a Trust(with my wife and I as directors) and sold my PPOR to the trust? I'd still be up for stamp duty, but nothing else? No CGT as it's not an investment as yet. Then I'd be paying a lot less Land Tax, as the two entities (joint owners) vs (trust) would be completely independent of one another.

    Thoughts?
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,666
    Location:
    Australia wide
    that is an option but depending on where the house is locate the land tax could be more than before.

    ps. you can only be a director of a company, not a trust, and get legal advice about having 2 directors of a company.
     
  10. See Change

    See Change Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,110
    Location:
    Sydney
    Diversify .

    Nail saloon in Thailand with second wife running it ??

    Cliff
     
    Scott No Mates likes this.
  11. Harry30

    Harry30 Well-Known Member

    Joined:
    4th Aug, 2017
    Posts:
    792
    Location:
    Melbourne
    Buy in the NT, no land tax;

    Buy in different names, entities, structures, so you stay on the lower threshold and you avoid aggregation as occurs if bought all in one name;

    Spread purchases among different states as holdings are not aggregated across states,

    Buy properties with proportionately lower land value (units),

    Pray, or better still, become a religious institution, as they don’t pay land tax.
     
  12. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,932
    Location:
    Brisbane
    Ever increasing land tax is a major prompt for us to change direction and finally develop the block we've held, sell something and put the money into another asset type that gives an income stream.

    Even using a trust means land tax from the first dollar, whereas individual names gives us $600k each before it kicks in.

    I've been investing in property for 40 years and it is only the past few years that land tax has become a very big disincentive to hold property. The value of the land rises dramatically some years, and the threshold never seems to budge.
     
  13. FredBear

    FredBear Well-Known Member

    Joined:
    7th Aug, 2018
    Posts:
    467
    Location:
    Sydney & Abroad
    Agree - land tax has got out of control in recent years. For us it is $26k p.a. in NSW, so 45% of rent income goes in land tax. 10 years ago it was 12% of rental income.
    Thinking that next time we are renting out we should advertise something like "$600 p.w. plus NSW Land Tax at $500 p.w." just to highlight how big the land tax really is.
    Pity those who are not Australian Citizens in NSW, you get hit with the surcharge which would take the land tax to well over 100% of rental income.
     
  14. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Tax doesnt require justification. Since 1953 Land Tax has been a burden for landowners. Long before you started to buy. Its like saying I dont like paying rates any more. There are a range of strategies to reduce and avoid it

    - Buy property in other states to use that threshold too
    - Buy commercial property where the tenant pays the land tax
    - Non property investment
    - Consider other structures eg SMSF, Trust etc
    - Shift focus from dwelling + land to apartments which has a lesser land value
    - I wouldnt be renting the former PPOR without a debt. Consider selling it. The positive gearing + land tax could be nasty. Borrow to buy in another state and be debt free on the new home.
     
    GoneFishing likes this.
  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    Resi Tenancy leases do not permit a tenant to be charged for land tax, rates, strata etc. Cant even mention it. NSW isnt the only state that adds surcharges to property. Vic and QLD also have similar provisions which often add substantial costs to the property and can commonly be as much as the rent itself.
     
  16. GoneFishing

    GoneFishing Well-Known Member

    Joined:
    13th Jul, 2015
    Posts:
    72
    Location:
    Melbourne
    Hi Wylie, do you mind me asking what asset type is giving you an income stream? I'm trying my best to become a self-funded retiree through property, but the Government is greedy and won't allow me to.
     
  17. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    A huge range of choices. Shares, ETFs, Managed Funds, Lending, Cash deposits are examples of investments that pay income. Each has a different exposure to markets and risks.
     
  18. Harry30

    Harry30 Well-Known Member

    Joined:
    4th Aug, 2017
    Posts:
    792
    Location:
    Melbourne
    Land tax has been around for a while, but the key problem is the progressive nature of the scales, and the fact that they are never properly adjusted. In Victoria, there is no tax up to $250k, and a rate of 0.2% for land between $250k to $600k. However, if land is valued at over $3m, the marginal land tax rate is 2.25%, over 10 times the marginal rate that applies to the $600k threshold. So, the Government sits back and just lets inflation do the work. With enough time, real rate of tax could increase by a factor of 10. Bracket creep on steroids.
     
    wylie and Terry_w like this.
  19. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    I have found that in NSW most owners have had a small reduction in land tax while the property values have risen. NSW is a state where the threshold is indexed. Annual values are also subject to 3 year smoothing.

    Vic thresholds havent changed since 2009. Certainly bracket creep does impact. The other factor is valuations occur in arrears explained as : Because 2016 was a council valuation year, your site value probably increased in 2017, affecting the total taxable value of your land holdings. Your 2018 land tax assessment is also based on the 2016 valuation.

    Its worth recalling that upwards valuation and land tax also has a VERY regressive nature. Eg a $30K rise in LAND value suggests a higher rise in total property value ($50K ??). And if that $30K of land value increase had occurred last year the additional land tax would have been as little as $60... 0.2% And at 2.25% you still keep 97% of the increase ($675) BEFORE tax deduction benefits

    I would prefer my assessed tax rose.
     
    Last edited: 21st Dec, 2018
  20. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,932
    Location:
    Brisbane
    At the moment it is rental income, but going forward, the land tax is just taking too much. If the threshold moved it would be different. Added to the other costs (rates, utilities, insurance etc) it just makes it less attractive than it used to be.

    We don't have a lot of houses either, but the land value is high. I cannot imagine how some on here holding lots of properties manage this. I know some spread over different states and different entities. But even putting a house into a trust doesn't help much. In fact we would be much worse off (not even allowing for transfer duty to move something already held into a trust).

    For one property, as an individual we pay $2700. Put into a trust we would pay $7825. That property we get $26k in rent. It's getting crazy. We've been aware of this growing problem for several years, but have been working towards moving out of holding houses. It takes time and planning.

    I don't know what we will invest in if we get out of houses. I have a lot of homework to do.
     
    Last edited: 21st Dec, 2018