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Land tax in a Trust vs Non-Trust

Discussion in 'Accounting & Tax' started by FirstTimeBuyer, 8th Jul, 2015.

  1. FirstTimeBuyer

    FirstTimeBuyer Well-Known Member

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    I did some quick calculations to compare savings on land tax paid when purchasing in a Trust vs not in a Trust. It's a very simplified calculation that considers only the land tax paid for a single property.

    I thought there would've been land tax savings if a property was purchased in a Trust but my calculations seem to show that purchasing property in a Trust is just more expensive. I know there are other factors/advantages of holding a property in a Trust (bankruptcy and lawsuits) but from a purely financial point of view it doesn't seem to be beneficial?

    I've shared a google spreadsheet to show my calculations. Land tax calculations are based off this thread Devank posted (Thanks!).

    I feel like I am missing something fundamental, so if someone could point that out then thank you!
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    What state and what sort of trust?
     
  3. FirstTimeBuyer

    FirstTimeBuyer Well-Known Member

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    This is for Brisbane. The Queensland government website doesn't distinguish different trust types so my assumption was the rate would be the same across all trust types.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Ok, you are missing 2 things

    The threshold is per trust. So a $600,000 land value property may not pay any land tax is owned by 2 trustees as tenants in common.

    And once a trust threshold or a personal threshold has been used up a new trust could be establised and a new threshold obtained.
     
  5. C-mac

    C-mac Well-Known Member

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    Hi Terry, thanks for that insight. Got a question for you based on your comments. In qld, I have my portfolio in my own name and am dancing ever so close to the land tax threshold but not breaching it.

    But, one more IP purchase in my own name would topple it. Is it a viable solution to start my first qld trust and continue buying in that trust too. Having one trust portfolio and one own-name portfolio in the same state - do you foresee any issues with this?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes its viable. bUt you have to consider all the other issues with trusts - negative gearing, succession, control on incapacity etc.
     
  7. Handyandy

    Handyandy Well-Known Member

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    I addition to the point made by Terry.

    You should also take into consideration your longer term hold strategy.

    You say that you are already close to the threshold in your personal name, does that mean that the next set of property market increases push you over the threshold? I suspect it would and the point is that you should plan much earlier how many properties to hold for how long to avoid land tax for as long as possible.

    Maybe a strategy should be that you only purchase up to half the threshold value and then move on to a third trust etc (only Qld related)

    Cheers
     
  8. C-mac

    C-mac Well-Known Member

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    Thanks Handy Andy, very good strategy!

    If Brisbane has the mini-boom that is being predicted over the next 24 months and my land values go up more than 7% on average, then yes I will unfortunately get bumped into land tax territory :(

    Two trusts could be the go, but I'll need to look at the expense of doing two versus one, and see if it's worth it.

    Thanks again!
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    One of the problems with any strategy to limit land tax impacts is its not set in stone. Values change. The Govt changes thresholds and rates at times. And if they don't index taxes the bracket creep hurts. Sometimes you have to look at a land tax saving strategy as a best efforts endeavour. This particularly applies with trusts in NSW. You cant double dip as such but with the right strategy could save $7k a year v's the wrong strategy.

    One of the mistakes I see people make is over focus on land tax and then they get ownership % wrong. One of the best strategies to eliminate land tax is to spread ownership across different states. Its a perfect avoidance strategy.
     
  10. C-mac

    C-mac Well-Known Member

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    Sound advice, thank you!
     
  11. FirstTimeBuyer

    FirstTimeBuyer Well-Known Member

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    That's very interesting. If a property can be split across multiple (or is there a limit of 2?) trusts, can it also be split under a Trust and under an individual/joint person? e.g. If I purchase a property under my name, is it possible in a few years time to move a certain percentage/value of the property, say $350,000 of the value of the property, into a Trust while keeping the remaining value of the property under my individual name?
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes certainly possible. But not a simple process - stamp duty, CGT and new loans needed.
     
  13. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    And depends which state. Waste of time in NSW.