Tax and legal advice
Shukri Barbara

How to minimise land tax

By Shukri Barbara

Investors looking to reduce their outgoings would do well to understand how land tax works and how they can avoid it. 

Blogger: Shukri Barbara, principal adviser, Property Tax Specialists

Land tax is levied by the various states on the unimproved value of land. It’s a great revenue raiser. Where the combined value of all taxable land, owned in each state, exceeds a threshold, land tax is levied. The Office of State Revenue in each state administers its system separately. Rates are progressive, increasing with the increase in land value.

While the main features are common to all states, the tax rates themselves vary markedly and warrant careful consideration when you’re calculating the potential return on investment and deciding which state to buy property in.

Concessional thresholds are generally available for individuals and companies, and some states – including Queensland – allow a threshold for land owned by trusts. New South Wales makes no such concession for land owned by trusts, unless the flexibility is removed from the trusts. In Western Australia, the ACT and Tasmania the same thresholds and rates apply to all entities. Thresholds are generally indexed for inflation.

There are certain land tax exemptions common across all states that relate to principal residences and primary production locations.

Land taxes are an additional expense on wealth and thus reduce net rental yields.

Land tax is assessed on land owned on a particular date: 31 December for NSW and Victoria, and 30 June for land owned in Queensland and WA. So for those adopting short-term strategies of cosmetic renovations and sale or flipping off-the-plan, settling a sale before those dates may mean a saving of tax and consequently a higher profit.

Land tax is generally levied on land. So where the land is jointly owned the concessional threshold is split according to ownership. Generally, it comes as a rebate against the liability.

One strategy to minimise land tax expense is to acquire additional property investments in other states, until the thresholds are reached in each state. This also has the advantage of spreading risk across the various property markets.

Another strategy allowing access to a larger threshold overall, is to place ownership – part or full – in another friend or family member’s name. Control can be maintained by having caveats on the property or taking out a mortgage as you advance the funds for the acquisition.

This has income tax implications, especially if you are using a negative gearing strategy, where you offset your rental losses against your salaried or business income to minimise tax. Other tax implications include capital gains tax liabilities for the person whose name is on the title when the property is sold or has to be transferred back due to conflict, disagreement or death.

In NSW, landowners are required to lodge the ‘initial’ land tax return declaring all his/her land holdings. The authority will keep track after that. This is in contrast to the Australian Taxation Office (ATO), who will chase you up immediately. Note, however, that where any land tax is outstanding, the land will not be transferred on sale. Interest will also be levied in most situations.

The decision to manage the land tax expense must be approached holistically and include a review of the feasibility/ profitability of each new investment. No concessional threshold is available for land owned by trusts in NSW, while only a minimal amount is available in Victoria.

Overall, Queensland and WA have more favourable schemes for aggregated land valued at less than $1 million, while South Australia appears to have higher rates. Remember that rates rise progressively where land ownership increases. 

Here's a land tax calculator to work out tax and could aid in diligence and planning.

Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.

 

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About the Blogger

Shukri Barbara

Shukri Barbara

Shukri Barbara is a CPA with over 30 years experience in public practice and professional associations support service. He is a Certified Practising Accountant and a Chartered Tax Adviser, as well as Principal Adviser at Property Tax Specialists.

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  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1193 (52) {
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
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  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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