Land Tax

Folks, question around Land Tax.

Interested to know what are some of the strategies others here are using to minimize land tax ? At the moment have purchased 1 IP in QLD and will be slightly over threshold. To keep purchasing in QLD what options does one have other than going inter-state ?

Cheers ...

 

In qld each legal entity or trust generally gets a new threshold. Appropriately structured there may be no reason to pay land tax in qld

 

But held in 2 trusts as tenants in common him land tax potentially

 

It could be worth it if you could split it across two trusts. Annual costs would be asic annual rego + accountancy fees so might only be around $1-2000k depending on complexity of returns.

I run 7 trusts for land tax reasons

 

If Trust A and B own the same property there wouldn't be much extra cost really. 2 identical returns.

 

If trusts were settled in QLD with the same trustee company there could be cost efficiencies for two, three or more trusts. BUT the risk remains that QLD Land Tax laws are unlike any other state. If the Govt were to change laws and stop individual trust thresholds or make them grouped it could become a expensive structure to use and with very high costs to fix it. If the people involved were to change residency and depart Australia the trust may also face tax issues and legal issues

 

I think it probably best to assume that the QLD will start to aggregate trusts at some point - so much revenue could be raised and the multiple trust strategy is really an avoidance strategy

 

I have always qualified any discussion I have with tax clients on this key threat. Still hasnt occurred !. The recent SA Govt budget announced a harsh expansion of the grouping rule for companies and trusts. Its only really matter of time before QLD cites evasion and investor abuse and strengthens its laws.

SA Land Tax (July 2019 Budget)
Amendments to the Land Tax Act 1936 to:

• introduce improved land tax aggregation provisions and a surcharge on certain trusts; and
• reduce the top marginal land tax rate.

The Government has announced that the changes will apply from the 2020-21 financial year (land tax calculated on 30 June 2020). The final details of the arrangements are subject to consultation prior to implementation, and the approval of legislative amendments by Parliament.

Aggregation and trust surcharge measures
The Government will introduce improved land tax aggregation provisions and a surcharge on certain trusts to ensure that there is equity between taxpayers.

In South Australia, land tax ownerships are aggregated together to ensure owners of land pay equivalent land tax rates on the total value of land regardless of the composition of land held.

An improved approach to the aggregation of land for land tax purposes will be introduced in South Australia to look through separate legal structures to determine the true owner of land and include:

• a shift to aggregation based on an owner’s interest in every piece of land, rather than only aggregating properties held in the same ownership structure;
• introducing provisions to allow two or more related companies to be grouped for land tax purposes; and
• introducing a surcharge on land owned in trusts in cases where the interests in land of trust beneficiaries are not disclosed by taxpayers or cannot be identified. Exceptions will be provided from the surcharge for certain trusts.

 

For capital gains purposes you can nominate 1 property as your PPOR and get the full capital gain return. Could the same be done with land tax if i choose to rentvest?

 

It will depend on the circumstances. Generally the 'principal' home is the one you are residing in so nominating another won't help. But there are limited absence rules in most states which may mean it is possible in some circumstances such as renting the PPOR out in NSW for less than 6 months. Also some concessions for buying then selling the former.

 

Not really. As Terry alludes there can be a limited exclusion for an initial period SOMETIMES but the land tax rules are far more strict than CGT and dont really deal with absence in a similar way.

Also your post suggests the property its first a main residence and then a IP. That means the property may or may not be 100% CGT free depending on the market value on the date first rented (s118-192) and the 6 year absence rule. After 6 years it pro-rata.

 

Yep thanks i actually found an earlier post of yours where you had answered this.

I lived in the property for 12 months as I thought it was required for the first home owners grant at the time. (im told you can still receive this later on). I didnt know it would qualify me for the CGT discount... so what you are saying is that you also need to live in the house for a full 12 months to get the 6 years of CGT discount?

 

No that is not the case in either account

 

thanks......

 

(im told you can still receive this later on). I think this is wrong

I didnt know it would qualify me for the CGT discount... holding for 12 months qualifies for the 50%CGT discount, not living in it.

so what you are saying is that you also need to live in the house for a full 12 months to get the 6 years of CGT discount? There is no 6 year CGT discount. You might be talking about the absence rule which states you can keep counting a property as your main residence for up to 6 years after you move out. But there is no requirement to first live in the house 12 months - or any period

 

Buy over the ditch where there is no land tax.
The last property I purchased would have incurred a cost of almost $1m in stamp duty and land tax if I purchased in Australia.

 

No.