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land tax calculation - joint ownership vs individual

Discussion in 'Accounting & Tax' started by Ravi, 21st Feb, 2016.

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  1. Ravi

    Ravi Active Member

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    Hi,

    I am trying to calculate total land tax that I have to pay for my situation:

    I and spouse jointly own 4 lands (50% each) - value 400k each. total 400*4 = 1600k

    As we are joint owner there will be only one threshold used for calculating land tax.
    So as per current threshold in nsw:

    Assessment for joint owners(Primary) Mr A + Mrs B (all 4 properties):
    Total land tax payable on 4 lands (land value $1600,000) = $17,988 ((1600k - 482k) *1.6 % +100)
    A’s 50% share = $800,000

    Assessment for A as secondary tax payer:

    Total land value of A’s interests = $800k
    Land tax payable on total land value of $800,000 before deduction = $5,188


    Now let's calculate deduction (to prevent double taxation):
    Calculation 1: ($800,000 divided by $1600,000) multiply by $17,988 = $8,994.
    Calculation 2: ($800,000 divided by $800,000) multiply by $5188 = $5188

    A's allowable deduction is $5188 (lesser of calc1 & calc2), so his total land tax payable will be: $5188 minus $5188 = $0.

    Hence, in this structure A+B jointly pay $17,988 towards land tax.

    Second structure:
    Had we purchased lands individually, that is 2 lands each:

    Then A's land tax would be ($800k - 482k ) * 1.6 % +100 = $5,188
    Same calculation for B, land tax = $5,188

    So, in this structure total land tax paid by A & B is 5,188*2 = $10,376

    As you can see there is a massive difference of $7,612.
    We have to pay $7,612 more per year just because we made a mistake by owning properties jointly.

    Can someone please verify if above calculation is correct and I am not missing anything?

    I understand there are several other disadvantages of joint ownership, but let consider only land tax for now.



     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    What state?
     
  3. Ravi

    Ravi Active Member

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    NSW
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes that looks about right. But i am only reading this on my phone (from top of doi sutep chiang mai)
     
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  5. Scott No Mates

    Scott No Mates Well-Known Member

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  6. Bran

    Bran Well-Known Member

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    I rode my mountain bike down a trail on the side of that I'm pretty sure
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    There were a few bike riders about. Its a steep drive up and then lots of steps to the top.

    I am going to have sore legs tomorrow.
     
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  8. Bran

    Bran Well-Known Member

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    The 4WD up was far more terrifying than riding down
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    That's sort of correct. In the initial example secondary assessments aren't issued unless A / B own other additional property. When this occurs a credit for the 50% of the joint assessment is given. Otherwise the joint assessment is full and final and there is a single threshold of $482K given as the joint ownership is a "owner of land"
     
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  10. Daves2074

    Daves2074 Member

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    Hi Paul,
    I'm not sure I understand your response. Given the initial example above if a and b own 4 property at 50/50, and say A buys a 5th property (again 400k to keep simple) just under A name. How does that affect the total land tax position?
     
  11. Ravi

    Ravi Active Member

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    Assessment for joint owners(Primary) Mr A + Mrs B (all 4 properties):

    Total land tax payable on 4 lands (land value $1600,000) = $17,988 ((1600k - 482k) *1.6 % +100)
    A’s 50% share (in 4 properties) = $800,000

    Assessment for A as secondary tax payer:

    Total land value of A’s interests = $800k + 400k
    Land tax payable on total land value of $1200k before deduction = $11,588


    Now let's calculate deduction (to prevent double taxation):
    Calculation 1: ($800,000 divided by $1600,000) multiply by $17,988 = $8,994.
    Calculation 2: ($800,000 divided by $1200,000) multiply by $11,588 = $7,725.33

    A's allowable deduction is $7,725.33 (lesser of calc1 & calc2), so his total land tax payable will be: $11,588 minus $7725.33 = $3862.67

    So, A+B jointly pay $17,988 towards land tax.
    A separately pays $3862.67

    Hence, A's total tax = 17988/2 + 3862.67 = $12856.67
    B's total tax = 17988/2 = $8994
     
  12. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Most people aren't aware of secondary assessments. They only issue if one of the joint owners also owns other land. Each owner of land cant double dip thresholds and secondary assessments is how this operates to eliminate double counting. This is common where a unit trust is used. The above example is a good illustration of how this works.