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Big Land Tax Bill - Is is time to sell

Discussion in 'Accounting & Tax' started by Tonibell, 18th Jun, 2015.

  1. Tonibell

    Tonibell Well-Known Member

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    With the Sydney market starting to look like it will level off. Is anyone thinking of selling some of their properties in Sydney and then reinvest in other states eg, Qld and SA.

    That is sell when the market is high and then go and buy in another state where the market has not yet moved.

    My concern is that If the Sydney market levels off for a number of years a large land Tax bill will eat into ones hard earned capital gains.
     
  2. Mumbai

    Mumbai Well-Known Member

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    I have been thinking that too. Unfortunately, I have hit the serviceability wall and can't get loan for sometime.
    Will wait and watch!
     
  3. Mick C

    Mick C Well-Known Member

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    Land tax is a small price to pay for CG ( Hopefully you bought something with decent CG).
    It's 1.6% of the LAND value....so really on average 0.9% of your total property value each year....im hoping if you bought something in Sydney it will make in excess of 3-4% per year.

    All good to invest in different state as long as your investing for the right reason ( CG or RY....not land tax).
     
    Steven Ryan likes this.
  4. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Mick said it well.
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The cost of the CGT triggered by sale would be a factor most people seek to avoid. This land tax problem illustrates the need to carefully consider how ownership is structured when property is first acquired. Cashflow planning pre-purchase should have identified this issue.

    If the property doesn't have a depn schedule could you obtain one to max deductions ?

    The age old solution for many "PCers" (Not the same as SS) would be to acquire another IP interstate that has great depn and CA deductions to give an offsetting impact. The key benefit of depn and cap allowances is they don't come from cashflow.
     
    Last edited: 19th Jun, 2015
  6. RPI

    RPI Property Lawyer, Town Planner Business Member

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    Land Tax might only be a small percentage of your property value but it can absolutely kill your cash flow.
     
  7. RetireRich101

    RetireRich101 Well-Known Member

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    I think the problem with land tax is that it is payable annually, can't be deferred... whereas the CGT you have more control when to sell to trigger when CGT is payable.

    When you hit that threshold, it will only go up and up, and severely impact your cashflow position.
     
  8. RetireRich101

    RetireRich101 Well-Known Member

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    Wondering APRA working with OSR NSW on the land tax threshold, would be another strategy they would undertake in the future, to ease of off investment activities in NSW? Just food for thought.
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Rich -. NSW wont drop their revenue to assist a Commonwealth regulatory agency that has zero influence. As far as Mike Baird is concerned he is a Premier with a budget surplus and infrastructure plans to spend it and more.

    I am expecting the NSW State budget may adjust stamp duty thresholds as value increases have caused vast tax increases. That said it wont be as much as anyone wants I bet.
     
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  10. Pistonbroke

    Pistonbroke Well-Known Member

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    With regards to item 1 - refinance to release the capital for reinvestment , you don't need to sell and lose in capital gains tax, agent fees and break costs.

    Item 2 - they're not hard earned cg unless you have done something to the property above and beyond normal expectations eg: redevelopment, undertaken a planning proposal for rezoning, achieved greater than normal density etc - not just getting fullylucky and riding an upturn in the investment cycle.
     
  11. Rixter

    Rixter Well-Known Member

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    Unless you've bought a lemon and need to cut it from the flock it costs you sell and redistribute your equity elsewhere. Better off borrowing against existing holdings and increase your asset base spread into other interstate markets if that's where you're looking to purchase. I hope this helps.
     
  12. See Change

    See Change Timing Lord Premium Member

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    We did sell in Sydney last year , but part of that was downsizing as we had previously bought our downsizer earlier in this cycle .
    The land tax we had while we held the extra property was a pain and I happy we don't have to pay it .
    One of the Doctors I've worked with has 3-4 houses on the northern beaches and last time I saw him was complaining about a 50 K land tax bill .
    If you buy properties in trusts in Q'land ( needs to be structured correctly - seek professional advice ) you have a good chance of avoiding land tax . SA is the same .
    Cliff
     
  13. skater

    skater Capitalist Premium Member

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    Yep! But not specifically to avoid Land Tax, more to downsize and the reduction of properties will in turn affect the Land Tax which will help keep the cashflow where I want it.
    It most certainly can and I've had to sell previously due to Land Tax issues. Properties that were bought in the wrong structure early on were eating us alive with costs, so out they went in order for us to keep growing.

    Nothing wrong with downsizing.
     
  14. Tonibell

    Tonibell Well-Known Member

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    Capital gains have been great - just not so keen to see the Valuer General's opinion about it all !