Tax Tip 30: How to Minimise land tax in NSW

Make that 3+ as each SMSF can get a threshold.

 

thanks for that, with strata properties etc townhouses/units. is land value for the unit calculated by say 30 units for the block of land 30 / land value = land value for that particular unit? i never thought about it before but land tax would very quickly become the biggest issue for long term investing. what do most people do to get around it if just wanting to invest in nsw?

 

Its based on the unit entitlement % of the total land value.

The only way to avoid land tax is to invest in shares or other states.

You cannot set up multiple companies as they will be aggregated after the first 2 or so.

 

yes i understand you could only have 1 company for land tax purposes, with units my question is does the % for common area go into the calculation for the individual unit? etc 1million land value / 30 units = individual land value or is it 900k land value (100k common area) and then it'd be 900k / 30 units etc? sounds silly but some people like nathan birch try and stick to units/townhouses i figure better rental yield but was curious if there were perks from a land tax point of view.

 

Its worked out on the unit entitlement and I believe this includes part ownership of the common property. so if the value was $1mil and your entitlement was 1/30 then your land tax value for the unit would be $1mi x 1/30

Note that different size units have different entitlements though.

 

Legal advice to compare a unit trust for each property with TIC interests is wise. The pros and cons can include changes to % (duty free) and widely held trust interests and more. Versus the land tax threshold/s etc. This is a good example of what seems so simple but can be complex legal advice and be important long term.

 

Terry, great post, wish I have seen it earlier.

My spouse and I have 1 IP in NSW under JT, we are in the process of buying IP2 in NSW. The total land value of both properties will be over the threshold and we will start paying land tax.

Am I right to say that disregarding the ownership structure of IP2, as long as we hold it jointly (JT or TIC in equal or unequal %), we will be liable for the same amount of land tax as a whole?

If instead of holding IP2 jointly, we put one person's name in the title only, then we can pay less land tax? However in doing that, the biggest problem would be getting the loan I would assume. If together we can service a loan of $x amount when we buy IP2 jointly, buying it under one person's name would dramatically reduce the borrowing capacity (even having the other person as guarantor)?

Is there a way we can avoid paying land tax without going into company/SMSF structure?

 

And what are the other things couples should consider for owning a IP jointly or solely except for land tax? One thing I can think of is CGT. When the IP is sold, sharing the capital gain among two people would mean it is less likely to reach the highest tax rate for each individual, and thus reduce CGT.

 

Not necessarily correct.

possibly

If you can qualify buying in both names you are likely to qualify in one name with both as borrowers or guarantors

Yes potentially

 

heaps of things to consider - but something your lawyer should advise on

 

Hi Terry, thanks for your reply. Would you like to elaborate a bit more on point 1, 2 and 4 please?

 

I cant even find 1, 2, 3 or 4.

 

Sorry hasn't been clear enough, my bad! I am hoping to get more explanation on the answers provided below, so I know what to research on.

Question 1: Am I right to say that disregarding the ownership structure of IP2, as long as we hold it jointly (JT or TIC in equal or unequal %), we will be liable for the same amount of land tax as a whole?
Answer: Not necessarily correct.

Question 2: If instead of holding IP2 jointly, we put one person's name in the title only, then we can pay less land tax?
Answer: possibly

Question 4: Is there a way we can avoid paying land tax without going into company/SMSF structure?
Answer: Yes potentially

 

Do a search and read my posts and then seek specific legal advice.

 

Thanks Terry, I did all the above, even developed a template to calculate our scenarios, but my solicitor doesn't know more than I know, so he cannot check if my understanding is correct...

 

Terry, re-reading all the discussion above I found a link to your tax tip 124, which answers my questions well! Thank you!

 

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