Investors Ask: Concerns about land tax
Q. I own three properties, all in New South Wales. I’m starting to get worried that I will have to start paying land tax and that it might negatively affect my overall strategy. What do I need to consider, and how can I find out about this?
A. Land tax in is a state based tax on owners of land. Each state levies rates separately. Where the combined value of all taxable land exceeds a threshold it is levied by the state and administered by the Office of State Revenue.
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In NSW the 2012 threshold is $396,000. The tax rate is $100 plus 1.6 per cent on every dollar exceeding the threshold.
For example, land tax on $500,000 total value:
$500,000 land value - $396,000 threshold = $104,000 taxable amount x 1.6 per cent tax rate = $1,664 + $100 = $1,764 tax payable
As an additional expense, the tax reduces rental yields when the amount could be used to pay interest or reduce debt.
The landowner is required to lodge the land tax return declaring all land holdings. The authority will then keep track. Tax is calculated on land held on 31st December yearly.
To manage land tax, consider investing interstate until the thresholds are reached.
Another consideration is to place ownership in another family member’s name. Control can be maintained by having caveats on the property or taking out a mortgage as you advance funds for acquisition.
This has income tax implications, especially when negative gearing to minimise tax. The decision to manage land tax must be part of a holistic approach that reviews the feasibility of each investment.
Shukri Barbara, Principal Adviser, Property Tax Specialists
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