Tax Tip 124: NSW Land Tax: Comparison of Joint v Single Ownership

NSW Land Tax: Comparison of Joint v Single Ownership


X and Y own $2million worth of property in NSW jointly and this has a land value of $1million. This consists of 2 identical properties with a land value of $500,000 each.


Their land tax bill would be

$100 plus 1.6% times ($1,000,000 - $482,000) = $8,388 per year in land tax.


However, if they owned one $500,000 property each the land tax would be:

$100 plus 1.6% times ($500,000 - $482,000) = $388 per year in land tax each.

This would be $776 combined.


In this instance owning one property each rather than the same properties jointly would result in land tax savings of $7,612 per year!


That’s a huge saving.

 

Do the numbers work roughly the same if
1. First property - x owns 99% and y owns 1%
2. Second property - y owns 99% and x owns 1%
??

 

That would result in the same higher tax tax as above.

 

For people planning to accumulate property, land tax becomes inevitable. Strategy to diversify different states works but comes with issues too. (ie Brisbane is not like Sydney). Same as Terrys suggestion above will save each and every year.

 

Silly question time - Owner meaning whose name is on the title for that land? and not who's name is on the loan for that particular land? Or would they have to match?

 

legal owner - name on title

 

We're going through the process of buying our first IP, and there will definitely be more to come.
Questions:

1. Based on @bdydrp 's question above.. When we purchase IP1, can I put only my name on the title even though the mortgage is under both myself and my wife? (Then IP2 under my wife, IP3 me, IP4 her etc trying to even out values as much as possible)?

1.1 If the title is in one person's name (but mortgage is still in both persons names) will this have any tax implications when it comes to claim time? Eg, putting IP expenses etc on each tax return to reduce each taxable income?

2. How do you determine land value? Is it what the council provides on the rates?

3. I assume this is cumulative, based on what @Paul@PFI has said above?
Eg. If I have 5x properties at 200k land value each.
I assume this makes it a 1mil value thus meaning I pay tax at 1mil value. Not having to wait til each property reaches threshold to then pay tax

 

1. Yes, but you wife cannot give a mortgage if she is not an owner. She can go on the loan though (with most banks) - but keep her off if you can..

1.1 I think you are conflating 'mortgage' and 'loan' which are 2 different things.

For the claiming of interest see
Tax Tip 79: Interest Deductibility for 1 on title 2 on loans

2. Valuer general determines land value. I think this value is what is used on council rates notices.

3. Yes in NSW all properties, other than main residence, are added together.

 

So husband & wife owning jointly would be treated as one entity for land tax. Then if the husband also owning property individually that would be a 2nd entity for land tax. Wife also owning property individually would be a 3rd entity for land tax. Therefore they could have 3 land tax thresholds of $482,000 for each of those "entities". Is this correct what I'm assuming?

 

No, because there is a secondary assessment.

 

Once again, thank for the great advice!

Question. How does QLD calculate their tax with joint tenants differently compared to NSW?

Also, say if X and Y own 9 John st, $500,000 worth of land value in NSW.
If they want to subdivided, is there an efficient way to have X own 9A and Y own 9B?

 

QLD each person gets a separate threshold of $600,000

Yes, X and Y could enter a deed of partition to avoid stamp duty on the transfer see
Legal Tip 77: Joint Purchasers of Land and deeds of partition

 

For a NSW property owned by Mr and Mrs A as joint tenant, can Mrs A transfer her portion to Mr A, without paying any stamp duty or other transfer costs?

 

Sometimes - death, divorce (court ordered) but generally not AFAIK.

 

no.

 

Mrs A could die and then the ownership becomes Mr A as sole owner without any duty.

 

thesuperman said: ↑
So husband & wife owning jointly would be treated as one entity for land tax. Then if the husband also owning property individually that would be a 2nd entity for land tax. Wife also owning property individually would be a 3rd entity for land tax. Therefore they could have 3 land tax thresholds of $482,000 for each of those "entities". Is this correct what I'm assuming?

hey @Terry_w , you replied that the above statement was incorrect because there is a secondary assessment. I had thought that the OSR was explaining it to me in the way @thesuperman had stated it. (ie they said to me that for joint owners - they take the value of the land, halve it and then apply the threshold to the half ownership). But I cant quite understand how the secondary assessment works and impacts this view above (other than for the purposes of eliminating double tax). I know im missing something! (or the OSR just was confused!)

 

Best to look at some of the examples provided by the OSR on their website.

 

Secondary assessments can occur if either owner owns additional property. It is intended to limit persons to a single dip at the threshold.

eg Dad and Dave each own 50 % of the units in a fixed trust. Land is worth $900K. Trustee gets a threshold and pays land tax. Lets assume Dave owns nothing else then no secondary assessment issues. Lets assume Dad does. He has a IP with $500K of land.

Dad would get a second assessment. It would add the $450K of the share of the trust PLUS the $500k personally so Dad gets a single threshold on $950K of assessable land. The total tax due then gets a 50% credit for the tax paid by the unit trust to avoid double taxation.. Dad pays the balance. Hence Dad only gets ONE threshold.

 

Thanks so much @Paul@PFI and terry, i really appreciate it. It took me a while to get my head around it!!