Join Australia's most dynamic and respected property investment community

Landtax Trust Surcharge

Discussion in 'Accounting & Tax' started by leicachamp, 7th Jun, 2016.

Tags:
  1. leicachamp

    leicachamp Member

    Joined:
    6th Nov, 2015
    Posts:
    21
    Location:
    Melb
    Just about every course i have attended suggested that it was best to set up trusts when purchasing properties. No one ever mentioned the costs of land tax in trusts is a killer!!!!

    For eg: I have 1 identity( Company ) that is holding properties valued at $819,000. Landtax if it was a company would be $1165. As a Trust the land tax is a whopping $5160.00. That is $3464 more because it is a trust.

    What benefit is it to be in a trust to have to pay over $3000 a year more for Landtax.

    Is there anyway to move the properties from a trust?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,037
    Location:
    Sydney
    Impossible to answer without you mentioning the state where the land is held.

    Yes there are ways to move properties out of a trust.
     
  3. leicachamp

    leicachamp Member

    Joined:
    6th Nov, 2015
    Posts:
    21
    Location:
    Melb
    Victoria
     
  4. leicachamp

    leicachamp Member

    Joined:
    6th Nov, 2015
    Posts:
    21
    Location:
    Melb
    Discretionary Trust set up after 2006.

    Surely others have been hit big time with Landtax Surcharge, yet i have not heard of any topics on this matter.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,037
    Location:
    Sydney
    Yes discretionary trusts get charged more land tax in VIC than natural persons do.

    Who set up your trust and did you mention the trustee will be buying real property? Do you want to sue them?
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    Using a trust is not always best. Sometimes it can be better. Sometimes worse. There are countless number of people who own property in NSW in a disc trust that in 2008 lost the threshold. They can pay $6K a year more v's some individuals.

    Moving a property from a trust to a company comes with other concerns too. If you think land tax is expensive the duty to transfer to a company would be $82,500 (assuming $1.5m value). There could be a sizeable CGT bill too.
     
  7. leicachamp

    leicachamp Member

    Joined:
    6th Nov, 2015
    Posts:
    21
    Location:
    Melb
    Ha, may have to sue myself. I requested that they be a discretionary trust based on seminars i went to. Are you saying that i should have set up, say a unit trust instead?
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,037
    Location:
    Sydney
    I think you should have gotten some proper advice because of the large amounts of money involved.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,037
    Location:
    Sydney
    What sort of seminar was it?
     
  10. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    After the 2008 trust debacle in the courts NSW went one way and took the threshold. So we are stuck with a flat 1.6% Vic went another way and imposed a reduced threshold (through tax scales). Admittedly its just $25K but the scaled rates remain far lower than NSW.

    My calcs indicate the difference is far lower Land tax current rates | State Revenue Office

    Co $2070 v $4854 Trust = $2784 difference
     
  11. leicachamp

    leicachamp Member

    Joined:
    6th Nov, 2015
    Posts:
    21
    Location:
    Melb
    I was trading properties in this identity so it did benefit me with the ability to distribute profits. But now with the remaining properties i will be keeping.
     
  12. leicachamp

    leicachamp Member

    Joined:
    6th Nov, 2015
    Posts:
    21
    Location:
    Melb
    I did a Peter Spann course, plus a few other property courses. Nearly went with a Hybrid trust, which Chan and Naylor was promoting at the time.
     
  13. leicachamp

    leicachamp Member

    Joined:
    6th Nov, 2015
    Posts:
    21
    Location:
    Melb
    Was there a land tax surcharge before 2006 for trusts?
     
  14. leicachamp

    leicachamp Member

    Joined:
    6th Nov, 2015
    Posts:
    21
    Location:
    Melb
    My bad, you are correct Paul. I still not feeling any better:( Still $2784 more!!!
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,037
    Location:
    Sydney
    My goodness! Neither are lawyers.
     
  16. Greyghost

    Greyghost Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,262
    Location:
    Melbourne
    1. At the time the advice may have been correct if you were trading/developing and selling properties. Maybe there could have been a little more proactive thought gone into the end game and if you wished to hold any long term though as now you are left with multiple properties in one trust.

    Usually we arrange for my developers to hold 1 or 2 units on a development at completion, but in investment trusts, not trading trusts.

    2. Regardless of above and given the land tax thresholds, if you held 1 property per trust with a land value of $300k, there is a difference per annum of approx $830 in land tax for holding in a trust Vs an individual.

    3. If you hold multiple properties in the one trust with significant land components then it does get very expensive. Which may be the case for you.

    4. Wouldn't recommend buying property in a straight company structure in vic

    5. You may need to speak to your accountant about any possible restructure opportunities at this point. Although there will more than likely be multiple issues such as accounting fees, CGT, GST and stamp duty to consider...
    If it were me I would still want the advice to fully consider my options.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,037
    Location:
    Sydney
    In VIC it may be possible for a property to be transferred from the trustee to a beneficiary without stamp duty (or $20 actually). This may be useful to you.
     
  18. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    Unlike
     
    Terry_w likes this.
  19. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    I just saved you a bit. Smile