Join Australia's most dynamic and respected property investment community

How to buy multiple IPs in the same state without getting bitten by land tax?

Discussion in 'Accounting & Tax' started by malaka_slayer, 26th Aug, 2015.

  1. malaka_slayer

    malaka_slayer Member

    Joined:
    26th Aug, 2015
    Posts:
    7
    Location:
    SA
    Hi everyone,
    Currently my wife and I own an IP which is under the land tax threshold in SA. We are thinking of buying another IP in the same state. Any idea on how to avoid / reduce land tax? Our accountant suggested us to set up a family trust, but I have little knowledge and experience in that area.

    Cheers
    Mark
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,098
    Location:
    Melbourne, Nationwide
    How to avoid land tax - Buy really cheap IPs with no land value.

    The benefit of a trust is that it's a different ownership structure, it's not actually under your name. As a result it's not assessed alongside your existing IP.

    Bear in mind that many states have different thresholds for commercial structures (such as trusts) as opposed to individuals. Using a trust in this manner may actually increase the total liability.

    Also ask your accountant what it costs to set up a trust and what it costs to maintain it (ASIC compliance, accounting). You may find it's more than your land tax bill.

    There's lots of great reasons to use trusts, but they're really a longer term planning tool than a short term fix. You need a better reason than to just avoid land tax.
     
    malaka_slayer likes this.
  3. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,578
    Location:
    Adelaide, SA
    Land tax threshold in SA is in the low 300K's, in SA this threshold amount is for both humans and trusts. Remember this is on the land value only, not the combined house + land value.

    Best bet is to buy some in your name only up til threshold, some in wifes name only up til threshold and then fill each trust til threshold and then repeat with additional trusts.
     
    malaka_slayer likes this.
  4. JacM

    JacM VIC Buyer's Agent Business Member

    Joined:
    12th Jul, 2015
    Posts:
    1,106
    Location:
    Melbourne, Australia
    Hi Mark

    I agree with @Peter_Tersteeg - you need a better reason for buying in different entities other than merely to dodge land tax.

    Buying in different entities can help dodge some land tax but will of course introduce other expenses. eg a Family Trust would need a tax return done each year which will bear a cost with the accountant's fees. As would the setup of the trust.

    Something worth pondering is the Self Managed Super Fund route (you can use superannuation to fund deposits and buying costs on property and the SMSF gets its own land tax-free threshold). One of the benefits of the SMSF is that (based on current tax law), the rental income is income-tax-free in retirement phase.

    I will happily email you some info if you wish. Drop me a PM with your details.
     
    malaka_slayer likes this.
  5. malaka_slayer

    malaka_slayer Member

    Joined:
    26th Aug, 2015
    Posts:
    7
    Location:
    SA
    Thank you, Peter. Do you roughly how much it will cost to set up a trust?
    I thought SMSF can only invest on Commercial properties?
     
  6. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,578
    Location:
    Adelaide, SA
    It can invest in nearly anything, but is probably too complex and too expensive for what you're doing. You also can't do much with the proceeds until retirement age. How old are you now?

    Whats the general type of properties you plan to buy and what have you bought so far? Keep it simple and cost effective is my general view.
     
  7. malaka_slayer

    malaka_slayer Member

    Joined:
    26th Aug, 2015
    Posts:
    7
    Location:
    SA
    I'm probably too young to retire, just hit 30 last year. lol

    We are thinking of buying a residential property with large land and our current IP's land value is $310k, guess next year I will get a small land tax bill.
     
  8. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,578
    Location:
    Adelaide, SA
    Cool, where abouts? :)
    I doubt you'll get a bill if you bought it with your wife, because you'd own half eg $155k each. Besides, the threshold this year is $323K.
    Where do you plan to get subsequent properties?
    Most of the Adelaidites of similar age and we catch up casually at the pub for a meal, keep a look out for future stuff and come along.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,972
    Location:
    Sydney
    You have to consider the land tax laws for each state. The laws are significantly different.

    A trust is not a separate entity, but there are different rules for persons acting as trustee. In NSW a person gets a threshold, but a person acting as trustee for a discretionary trust does not but a SMSF does. In QLD a person who is trustee of trust will be assessed separately to the land owned personally. A person who is trustee of multiple trusts can be multiple thesholds if the trusts are structured a certain way. Note that under law the word 'person' includes a company.

    So in NSW it is possible to get 6 thresholds
    A
    B
    Company A
    Company B
    SMSF A
    SMSF B
     
  10. JacM

    JacM VIC Buyer's Agent Business Member

    Joined:
    12th Jul, 2015
    Posts:
    1,106
    Location:
    Melbourne, Australia
    Nope, it can invest in residential property as well.

    The cost of setting up a SMSF depends on how high the fees are for the person setting it up. No reason why it cannot be done for circa $2100+gst
     
    Last edited: 26th Aug, 2015
  11. JacM

    JacM VIC Buyer's Agent Business Member

    Joined:
    12th Jul, 2015
    Posts:
    1,106
    Location:
    Melbourne, Australia
    Incorrect.

    Incorrect.

    Why do you say this ?? SMSF can be a very powerful tool in the investment portfolio.
     
  12. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,578
    Location:
    Adelaide, SA
    Depends on how you define 'nearly' :)
    Also depends if you're trying to flog your own product vs actually reading what the poster is trying to achieve.
     
  13. Tony Fleming

    Tony Fleming Well-Known Member Business Member

    Joined:
    18th Jun, 2015
    Posts:
    535
    Location:
    Sydney
    Your never too young to retire
     
    MBowen likes this.
  14. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

    Joined:
    20th Jun, 2015
    Posts:
    171
    Location:
    Brisbane
    No SMSF can definitely invest in Residential property and can still gear to an 80% lvr or higher.

    Cheers


    Richard
     
    Last edited: 26th Aug, 2015
  15. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

    Joined:
    20th Jun, 2015
    Posts:
    171
    Location:
    Brisbane
    From my understanding the original post related to ways of reducing Land Tax and whether buying in Trust would achieve this. Given that a SMSF is a Trust structure established to provide retirement benefits for the members i don't see how commenting that a SMSF might be an alternative to a traditional Discretionary Trust is self promoting.

    Regretfully a SMSF cannot invest in "nearly anything" and in fact the Investment strategy document will clearly define what can be considered acceptable. Such sweeping statements can be dangerous as well as inaccurate.

    Cheers


    Richard
     
  16. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,098
    Location:
    Melbourne, Nationwide
    SMSFs can invest in both residential and commercial properties.

    You'd need to discuss with your accountant on the specific costs around trusts, but you're probably looking in the order of about $2000 to get everything set up. You'll then spend about another $700 - $1000 in costs per year to maintain the trust (ASIC registration and accounting fees).

    Consider this cost compared to the actual land tax liability. If that's the only reason you're considering a trust, you're probably better off paying the land tax.
     
    <JC> likes this.
  17. malaka_slayer

    malaka_slayer Member

    Joined:
    26th Aug, 2015
    Posts:
    7
    Location:
    SA
    Thank you all for your input. I think this is the best way to do so far :p
     
    D.T. likes this.
  18. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,363
    Location:
    Sydney
    A discretionary trust may be dead useless for owning an IP that is neg geared.

    Personally I like Peters approach. Know the land tax thresholds and manage this through the acquisitions, the legal ownership and then consider buying in different states to mix your portfolio and avoid a one state strategy that will affect land tax. I see many people ignore that each of the husband and wife each have a threshold. Terry has posted endlessly about reasons why joint borrowings can affect servicing.

    A land tax issue is never reason to use a SMSF.
     
  19. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,578
    Location:
    Adelaide, SA
    He said he's buying in SA :p
     
    GreenGoblin likes this.
  20. Andrew G

    Andrew G Member

    Joined:
    29th Jun, 2015
    Posts:
    9
    Location:
    Adelaide, SA
    If I purchase a house using a 50/50 mine/wife's name, does that mean that 50% of the land value is added to each of our thresholds? I have existing property so does it all just tack on? Some are 50/50, some are just mine or just hers etc...
     
    Art Vandelay likes this.