Advice on landtax situation

Discussion in 'Accounting & Tax' started by Jacko, 3rd Jan, 2020.

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  1. Jacko

    Jacko Well-Known Member

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    Hi guys,

    Want to get your advice on a landtax dilemma for an investment property my wife and I purchased in Victoria. We currently pay a sizeable sum of land tax and are thinking of ways to reduce this. Over the longer term, we have plans to knock down the existing property and build townhouses on it. In addition, we are also aiming to purchase additional IPs in Victoria.

    We understand with our current ownership structure, additional IPs will result in significant increases in land taxes. Given we have plans to knockdown and build on the existing property, does doing a strata between my wife and I help with land tax? Based on the landtax formula, the landtax based on the assumption we each own half the value of the IP is much lower than what we pay currently. Does anyone know whether the strata strategy works?

    Cheers all
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    • What is the current ownership (in one name or joint names)?
    • Will changing ownership trigger CGT & GST liabilities?
    • How will you provide a plan of strata subdivision without construction of the townhouses or plans?
    • Will subdivision generate other costs eg additional rates, insurance, stamp duty?
    • How much are you talking about saving <$10k
     
  3. Terry_w

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

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    Get some legal advice on partitioning and then transfer title to one each. Will trigger cgt but could be duty exempt.
     
  4. Jacko

    Jacko Well-Known Member

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    Sorry, should have made it more clear:

    1) Current ownership structure - joint names
    2) Since the IP is under joint names, does this effectively mean each person owns 50%? If so, could I strata the IP between my wife and I bypass CGT and GST issues since each person retains their own 50%?
    3) Strata - I have no experience in this so my question is whether it'd be possible to strata without construction plans for the time being?
    4) If the answer to Q3 is no, could I change the ownership structure from Joint ownership to Tenants-in-common 50%50% between my wife and I?
    5) Savings in landtax: we estimate the savings shoudl be about $4k p.a
     
  5. Scott No Mates

    Scott No Mates Well-Known Member

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    Changing from joint tenants to tenants in common will not change the % each of you own. Unless you each have separate land holdings and one of you will fall below the LT threshold, will there be any tax saving?

    Even when considering a deed of partition, how many years before the CGT paid outweighs the Land Tax saved?
     
  6. Terry_w

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

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    2 no and no
     
  7. Terry_w

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

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    Are you joint tenant owners
     
  8. Jacko

    Jacko Well-Known Member

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    Current landtax under joint ownership: ~$7k
    Based on the landtax formula, if we are individually assessed and each owns only 50% of the value of the IP, each person's landtax should be ~$1.5k only hence the ~$4k saving?

    I'm assuming there are no CGT implications as each person's ownership under joint ownership is effectively 50% and under tenants in common it would also be 50%?
     
  9. Jacko

    Jacko Well-Known Member

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    We are joint owners right now
     
  10. Terry_w

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

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    Are you joint tenant owners or tenants in common?

    Both are joint owners
     
  11. Jacko

    Jacko Well-Known Member

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    Hi Terry, we are joint tenant owners.
     
  12. Terry_w

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

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    JT is considered as 50/50 owners tenants in common for both CGT and duty.
    Changing title to 1 title each will trigger duty and CGT as ownership is changing, but partitioning before hand could save you duty.

    Seek legal advice.

    You might be better off triggering CGT just to reduce land tax going forward and might be able to incorporate this into a debt recycling strategy too.
     
  13. Jacko

    Jacko Well-Known Member

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    Thanks, Terry. I guess my question on land tax is:

    1) Assuming no CGT and duties implication and my wife and I change to tenants in common, will my individual land tax assessment be based on the total value of the IP or just my 50%? I think this is where it is unclear for me.
    2) If the land tax is based on the total value of the IP, then my individual liability will be the same as if my wife and I were joint tenants.
    3) On the other hand, if my land tax assessment is based on just my 50%, then my land tax liability would be much lower as it would be on a much lower tax rate.
     
  14. Scott No Mates

    Scott No Mates Well-Known Member

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    If you each benefit from a separate land tax threshold then your land tax would reduce, if you share a single threshold, there'll be on different outcome.
     
  15. Jacko

    Jacko Well-Known Member

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    So would our being tenants in common rather than joint tenants mean we each have our own threshold?
     
  16. Terry_w

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

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    changing to TIC won't change the land tax outcome as JT is considered TIC in equal shares for land tax purposes too.
     
  17. Terry_w

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

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    no
     
  18. Jacko

    Jacko Well-Known Member

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    Got it, thanks all!

    Land tax is stifling investment is all I can say:(
     
  19. Terry_w

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

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    Selling and restructuring a new purchase can be worth it.
     
  20. Jacko

    Jacko Well-Known Member

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    How do you mean?
     

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