Land tax (NSW) in selling investment property

I have recently sold an investment property through an auction and we had a bit of interesting scenario around land tax and I thought I would write it on here and see what people might think.

When we put the property on the market we had allowed for about 7 weeks settlement which would fall before 30th of December 2019 from the auction day and besides we were open to offers prior to auction. We did this deliberately as we had paid land tax for current calendar year for this property and didnt want to pay land tax for new calendar year.

However on the auction day, the purchaser asked for a longer settlement which would fall in January and also removal of land tax. I agreed on a longer settlement as well as the purchaser paying 50% of land tax for this property which they agreed.

I didnt think it would be that complicated at the time but as it turns out my solicitor has requested for a section 47 certificate which strangely stipulates that I don't owe any land tax for year 2020 but when I rang rev NSW they are saying I do owe land tax and that I need to apply for an early assessment notice (which I have done now).

They wont be sending me a notice of assessment just for this property (which is what I need). Instead, they will be sending me one big notice of assessment listing my PPOR and all of my investments showing their value and total land tax and then they will apply the discount threshold which is no good for the purpose of above for obvious reasons.

However I have decided to wait for this early assessment to come through, then take the value listed for this property only (as they list the value of each property separately) and times it by 0.75 to arrive at the land tax for that property without any threshold discount (as I dont see any reason why they should benefit from my threshold discount and how would we apply the discount to just one property anyway).

They will then pay 50% of that figure.

Realistically there isn't a different way as my solicitor has said he isn't able to calculate based on last year land tax and Revenue NSW doesn't seem very clear on their processes and according to them in the best case I can get a full assessment for all properties.

Plz let me know what you think

 

Ask your accountant.

 

I would discuss your unorthodox calculations with your solicitor. Land tax is payable on all property you own and yes the threshold applies to these calculations. The difference between the assessment with and without the respective property (LESS THE THRESHOLD) should be determined and I would argue 50% of that difference is what was agreed. its possible the difference will be 50% of the tax due. But if land tax is payable on the holdings without the relevant property then the buyer would only be paying 50% of this difference. The home is exempt so that wont be a relevant issue in either calc. You may make the auction contract non-binding by overthinking things. The buyer solicitor will also make sure the condition is evident and clear on what is due.

OSR can provide a pre assessment estimate. Each property value is known. The tax rate is known. The threshold is known. Two calculations are required. Simples.

 

You'd need specific property and Land Tax advice on this one, I have mostly dealt with the issue on commercial leaseholds where the tenant's liability is always on a single holding basis.

 

Your 2019 land value has not been issued yet. The notice of assessment (will be issued Jan 2020) is for your aggregate land values up to 1 July 2019, less the threshold.

 

No its not. The 2020 Land tax assessment issued 31 December 2019 is for land held ON that date in NSW and its not in respect of a year ended either . If you sold the day prior there is no tax. OSR can pre-issue an assessment on request. Often requested since land tax clearance is a settlement requirement anyway. Notices often issue March so asking for it in advance is just part of the process. Your solicitor will have the extra land tax cost withheld as a settlement disbursement.

The confusing use of 2020 for a 31/12/2019 issue baffles me but is based on when its typically paid. ie during the 2020 year

 

I haven't made any commentary for land owned pre Dec 2019?

I said the 2019 land value has not been issued, and will be issued Jan 2020.
Issued March? maybe so and that might be specific to you, but most are issued Jan.

The issued Notice of Valuation is for land value as determined by the rating and taxing valuer as at 1 July 2019, and physically printed/delivered on Jan 2020. Delivered Jan which enables the 90 day window frame for objections.

They use 2020 Land Tax assessment, as it is issued in 2020, but the tax you pay in 2020 is for past land values, ranging from 3 to 4 years depending on LGA.

 

No, it's the average over the past 3 years not some arbitrary 3 or 4 years.

 

ok, we weren't planning to walk into this and for that reason I made sure the settlement was before end of December. However sometimes you need to be flexible with things in order to sell the property at the highest possible pricing.

Revenue NSW is a bit of a hot mess. I know this because they have sent a notification with their letterhead to my solicitor saying "There is no land tax(including surcharge land tax)charged on the land up to and including the 2020tax year" which they are now saying "tear it up" because there will be land tax payable on this property.

I had requested them to send a separate notification only for this property and apparently thats not possible so best they can do is listing all my properties, then doing one big calculation on what I owe and include the threshold in that calculation. That wont help.

The next best thing is to see, in their opinion, what is the value of the land as they will reflect this on their assessment for each property. We also know that land tax is calculated at 0.75% of land value for that year.

When we reached an agreement with the purchaser, there was no talk of any threshold discount. Therefore the agreement should be straight forward in that if valuer general (and revenue NSW) believe that this property is worth a particular amount and that land tax is calculated at 0.75% then we calculate land tax on that basis and go halves on it.

I don't see an alternative solution

 

I did say 'depending on LGA' did not say it was an arbitrary amount of years.

Note, there are LGA's in Sydney that have their Notice of Assessments over 4 years. Thou, the vast majority is 3 years.
From next year they are streamlining the assessments at 3 years.

 

It really doesnt matter what valuation they use, ultimately, as you have pointed out, if you own the land by end of December you pay land tax for it the following year for that calendar year.

Basically what this means is if you own a property by end of December 2019, you then pay land tax for it for the calendar year 2020. This is why if you sell it in 2020 then your solicitor will attempt to get some of the paid land tax back for you by putting a clause in selling contract.

Regardless of that, the issue we are dealing with here is being able to do a simple straight forward calculation on land tax without having to include discount threshold for this property only then go 50% on it.

 

0.75% of the land value for the valuing year???

 

Isn't it 1.6% in NSW?

I've never heard of these LGAs that had 4 valuation years either, where did you get that information?

 

https://www.valuergeneral.nsw.gov.au/__data/assets/pdf_file/0019/216631/OVG_Valuation_Schedule.pdf

 

Sounds like a defective clause inserted if it didn't stipulate on what basis land tax would be payable. I would get the land value for land tax purposes and ask for half of 1.6% of this.

They may resist wanting the threshold applied and pay half of the land tax applies over the threshold

 

Land tax assessment is averaged 3 year period. There's no 4 year period, you raised this period. From Revenue NSW website "The taxable value of each parcel of land is determined on the average value from the current year and the two past years, where applicable."

 

Yes, what you have picked out is the valuation cycle, not the assessment period and methodology used for the assessment of land tax.

Properties are valued periodically and adjusted annually.

 

The issue is a matter affecting a contract. Legal advice is required and is likely very straight fwd between the two lawyers / conveyancers and has been dealt with endlessly by anyone experienced in conveyancing. Loads of people have delayed settlement at 31/12 every year despite efforts to get things settled before Xmas and offices closing. The issue of land tax arises frequently. Determining the total sum is something they will do and if the parties agreed 50% then they need to ensure that is done. So put the issue to them now as that is their job.

Self assessing the issue wont assist and will just get the buyer off guard and defensive and may complicate the final position.

 

I think I high jacked this thread and turned it into something the OP wasn't asking...

Apologies, yes land tax is calculated every 3 years not 3 or 4 years. I confused it with the government rating and taxing which occurs 3 or 4 years depending on the LGA.

 

Land tax is calculated each year. Values are revised each 3 years. Regardless of when the valuation occurs it is given at 1st July of each year. The valuation is used for a variety of purposes including assisting councils determine rateable values etc. NSW land tax uses values that are smoothed by averaging the present and past two years. That said the average value also has a indexed threshold which in itself is also smoothed but the basis isnt publicised. It is a fancy formula that I suspect basically says - The Govt wants no less than $XXX of revenue

If you have the required info (a contract of sale will do as it has a copy of the rates and Lot / DP / SP details) you can search annual values for the period after 2001 here : Home - Valuer General of New South Wales