FAQ: The dreaded Land Tax

Land Tax - a Tax on the Rich?



How to Avoid or Minimize Land Tax

  • Own properties in multiple states, remember tax is applied to the total value in that state. Buy one property in NSW, VIC, TAS, ACT, QLD, WA, SA.
  • Buy in NT, no land tax in NT.
  • In some states buying individual properties in different trusts could limit the impact. For example in Victoria and QLD the first $150K is of land value is not taxed in a Trust but in NSW properties held in trusts are taxed from the first $1 of value.
  • Buy some in your name and one in your spouse’s name.
  • Buy overseas such as New Zealand where land tax does not exist (yet?).
I've just received my first land tax bill and would like to know how to minimise any future bills. I like the above suggestions but none of them are suitable in my case.

The only way I can buy in other states is by employing a buyer's agent or by spending lots of time interstate learning about markets that I know very little about. I'd rather buy in an area that I am familiar with. I've read lots about buyers agents, some of it has been positive, some not so; hence, not prepared to use one at the moment.

I like to buy new property that comes with high depreciation allowances. My wife's income is very low so if I buy in her name, I won't be able to take advantage of the tax losses, in particular the depreciation. This also applies to trusts which don't allow trustees to distribute losses.

Any suggestions???:confused:
 
Nth Brisbanite, Queensland lets you have a separate (though lower) tax free threshold for trusts. One way is to buy a negatively geared (most likely) property in a trust, and have another trust with positive income (shares, funds and bonds, say) and distribute the income from one trust to the other.

On the other hand, our Benevolent Mother-Deity Jan Somers noted in an API interview a few months back that most, if not all, of her properties are in Qld and she doesn't use trusts. She must be paying a lot of land tax, but she obviously doesn't need to work. You don't need to do all that tax stuff to be rich.

Personally, I do plan on diversifying between states (most of my stuff is in Qld but I have one in WA and am planning to buy in NSW soon). Mainly for diversification purposes: land tax is secondary. I take the approach that I can't tip 'hot' suburbs so I just go for standard ones. While I live in Sydney, what do I really know about the areas? Even the one I live in? So I'll just select a few target areas in different cities and research those.
Alex
 
Nth Brisbanite, Queensland lets you have a separate (though lower) tax free threshold for trusts. One way is to buy a negatively geared (most likely) property in a trust, and have another trust with positive income (shares, funds and bonds, say) and distribute the income from one trust to the other.

Alex
Thanks alexlee,

Never thought about having different trusts, one for negative gearing and the other with positive income. Unfortunately the threshold for trusts in Qld is not very high.

I know that there are a couple of specialists in this field like Chan & Naylor but they are booked up months in advance. With the costs involved in setting up and maintaining trusts I may go the same way as Jan Somers and just pay the land tax every year - the upside is that it is tax deductible. I did read that article in API.

By the way alexlee, have you heard of land trusts? How do they operate? Advantages/disadvantages?
 
Never thought about having different trusts, one for negative gearing and the other with positive income. Unfortunately the threshold for trusts in Qld is not very high.
Better than having to pay land tax on the whole amount, though. Having a threshold is better than not (as is the case in some other states).

By the way alexlee, have you heard of land trusts? How do they operate? Advantages/disadvantages?
I don't know what a land trust is.
Alex
 
Here we go again yet another Robin Hood group that will solve the masses problems by stealing from those nasty rich landlords and distributing it to the poor. :rolleyes:
Yeah Robin Hood.. Not a bad character, quite a good analogy really. But how about addressing the actual substance instead?

Is it better to derive public finances from productive capital investments, from labour or from resources used? Do you think that a local council's rates should be derived from the value of the site, sans improvements, or the value of the building and improvements? Which do you think will encourage productivity, employment, good and services, housing etc?

There is a reason why all senior economists from across the political spectrum say the same thing on this matter.
 
Hi all

1 thing I don't know re land tax.

Is the bill automatic, ie: they have a register of land holdings and then you get a bill or does something have to happen to set it in motion.

I know it is for land held 30th june of that year, if its automatic when do you receive a bill?


really silly Q's I know
 
In Victoria, it happens automatically, but may take up to about a year to catch up with you. I would suspect they have similar systems in other states. The bills in Victoria come out according to when they process them, so it can be any time of the year, and they give you some degree of notice and payment options in most cases (ie pay in a lump sum or by several payments).

Also, in relation to the post by Ray Brown in Oct. 07 - yes they gave us land tax on our PPOR too quite some years ago. It was a long process but in our case (because I didn't deal with it immediately mainly-too busy doing other things) we had to pay the tax then lodge an objection. They finally accepted our application, and took our PPOR off the land tax bill for future billing (thankfully before the next bill came out), but we never saw the money we had paid on our PPOR again. :(

Sometimes what is too difficult to change you just accept and keep walking. They will require you to fill in forms and write letters. I strongly suggest you do so, by contacting the relevant authority, and keep chasing a result every month or so. Perhaps if we had continued to chase it we could have got the money back, but I was too beaten down by that stage, and content that it was fixed for future billing at least. If you don't you never know, they may get you for capital gains as well! All the best. :)
 
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Unlike any other tax it cannot be passed on to the consumer because the supply is already (relatively) fixed. Further, a low rate of land tax encourage monopolistic speculation, leading to higher land prices. High rates of land tax reduce the price of land. It is rather unique in that sense; tax a chair and the price goes up, tax land and the price goes down.
Hmmm....none of the above is correct, at least in my limited experience.
 
I've just received my first land tax bill and would like to know how to minimise any future bills. I like the above suggestions but none of them are suitable in my case.

Any suggestions???:confused:
Perhaps purchase properties where you are lawfully able to offload the Land Tax impost onto the tenant.
 
Celeste in QLD you get a notice informing you of you land tax commitment a while before you get the bill so you have the opportunity to correct mistakes / dispute their land values etc.

We've not had our bill yet for the current year and unfortunately it's a biggy but then it's all just part of the cost of investing in property.

kaf
 
Since this thread was started in 2003, there have been a few changes. Also, over half the links don't work in Always Learning's original post, so I have updated them.

Note that some states use the calendar year to calculate land tax, whilst others use the financial year (ACT is different altogether by calculating it quarterly.) One way to save on land tax, is to know the dates when it is applied. For example, if I want to buy a NSW IP now, I can wait until January to sign the contract, which eliminates the land tax for 2008... This is because in NSW land tax is calculated at midnight on 31st December every year. The down side of this may be that you miss the property that you are after or prices may rise.

Here are some current figures, dates & links:

Queensland Land Tax
2007-08 threshold $600K... Trusts $350K
Calculated June 30 each year
Increasing sliding scale

NSW Land Tax
2008 threshold $369K... trusts no threshold.
Calculated December 31 each year.
Flat rate of 1.6% (plus $100) in 2008... reduced from 1.7% this year

Victoria Land Tax
2008 threshold $225K... trusts $20K
Calculated December 31 each year
Increasing sliding scale

SA Land Tax
2007-08 threshold $110K
Calculated June 30 each year
Increasing sliding scale

WA Land Tax
2007-08 threshold $250K
Calculated June 30 each year
Increasing sliding scale
Note rate less than half for non-metropolitan areas

ACT Land Tax
Current threshold $75K
Land tax liability is assessed quarterly and is based on the status of a property on 1 July, 1 October, 1 January and 1 April (liability dates).
Increasing sliding scale
Increased rates for commercial properties

Tasmania Land Tax
Current threshold $25K
Calculated July 1 each year
Increasing sliding scale


For comparison, I have taken the land tax from each state on four amounts. The figures are for 2007-08 financial year or the 2008 calendar year. They are taken from the calculators on the websites (ACT had no calculator):

QLD
$250K... nil
$500K... nil
$750K... $2250
$1M... $5875

NSW
$250K... nil
$500K... $2356
$750K... $6356
$1M... $10356

VIC
$250K... $300
$500K... $800
$750K... $1930
$1M... $3480

WA
$250K... nil
$500K... $825
$750K... $1650
$1M... $3225

SA
$250K... $420
$500K... $1770
$750K... $5420
$1M... $11420

ACT
$250K... $2875
$500K... $7000
$750K... $10500
$1M... $14000

TAS
$250K... $1288
$500K... $4838
$750K... $9838
$1M... $16088

Some interesting figures to note... Queensland starts off low & is middle of the range. Victoria & WA appear to be the cheapest. Tasmania & ACT are the highest but this could be becuse the land values are lower?
Steve
 
Post # 32 was a crackingly good post - thank you Steve.

You must be at work to have spent that long compiling all of that. I could never find the time at home when rotating to do that.

NB - I never joke when it comes to Land Tax....it hurts too much.
 
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Post # 32 was a crackingly good post - thank you Steve.

You must be at work to have spent that long compiling all of that. I could never find the time at home when rotating to do that.
LOL:D
You got it 100% right Daz! Very quiet as de-manning during rig move... Saw only 2 patients yesterday... I am not allowed on the net at home, so only SS at work.
Steve
 
ACT
$250K... $2875
$500K... $7000
$750K... $10500
$1M... $14000
These figures for the ACT are be too high but since this was the only site without a calculator, it's their own fault:D. I wrongly used a flat rate depending on the bracket, rather than the sliding scale.
The correct rates should be:

$250K... $2268
$500K... $5706
$750K... $9206
$1M... $12706

Steve
 
Can you quote any current, credible economist who agrees with your website?
You are correct when you said senior, in relation to the economists quoted on the website...
They were all over 85 years!
Steve
The reason why they are listed is because they are all recipients of the Noble Prize in Economics. It tends to be awarded after a long career :)

Here's some others...

Mason Gaffney, Professor of Economics, University of California.
Lowell Harris, Professor Emeritus of Economics, Columbia University.
Jacques Thisse, Professor of Economics, Centre for Operations Research and Econometrics, Universite Catholique de Louvain, Belgium.
Daniel R Fusfeld, Professor Emeritus of Economics, University of Michigan.
Carl Kaysen, Professor of Economics, Massachusetts Institute of Technology.
Elizabeth Clayton, Professor of Economics, University of Missouri at St. Louis.
Tibor Scitovsky, Emeritus Eberle Professor of Economics, Stanford University.
Warren J Samuels, Professor of Economics, Michigan State University.
Guy Orcutt, Professor Emeritus of Economics, Yale University.
Zvi Griliches, Professor of Economics, Harvard University.
William Baumol, Professor of Economics, Princeton University.
John Helliwell, Professor of Economics, University of British Columbia.
Giulio Pontecorvo, Professor of Economics and Banking, Graduate School of Business, Columbia University.
Harvey Levin, Augustus B Weller Professor of Economics, Hofstra University.

Hmmm....none of the above is correct, at least in my limited experience.
That's merely assertion and numerous empirical studies stand contrary to what you're claiming.

Perhaps purchase properties where you are lawfully able to offload the Land Tax impost onto the tenant.
Which won't work. The market price for land will remain the same; a neighbouring landlord will wear the land tax and provide the similar block for a lower rate than what you're offering. This has been known since Adam Smith's day (cf., Wealth of Nations, book 1, chap 5 and book 5, chap 2)

The best way to minimise land taxes is to not hoard vacant or near-vacant land in high-price areas. Build on it instead - and to get your local council to adopt a site-value rather than capital-value rating system, as the latter punishes those who improve their lots.
 
Cheers Lev,

You've just written off 13 years of local Australian, on the ground, practical property investing. :(

If it's a decision between cash and a couple of empirical studies from a gaggle of emeritus professorial academics.....well then the choice is clear to me.

Rather than quoting the academic qualifications of the authors of studies and papers, I'd be far more interested in reading current relevant Australian legislation on the matter to hand.

What you write off as an assertion and "won't work".....is working happily for us. Good luck to your methods though. I wish you great wealth going down your path.
 
Cheers Lev,

You've just written off 13 years of local Australian, on the ground, practical property investing. :(
One should distinguish strongly between investment in land and investment in buildings. The former does not create a single job, or any wealth whatsoever; it does however involve a wealth transfer from those who engage in productive investment, which does create jobs and provide goods and services.

It really is quite simple; public finance can be achieved either by appropriating the rental value of the sites that people use exclusively or it can be derived from the goods and services they produce or the transactions they engage in. All taxes, with the exception of land tax, punish productivity - land tax encourages it.

If it's a decision between cash and a couple of empirical studies from a gaggle of emeritus professorial academics.....well then the choice is clear to me.
Quite clearly you would choose short term cash over long-term wealth; which will lead to a real estate bubble which inevitably bursts because the market value for land as capital exceeds the market value for land as site-rental. Which is pretty much what caused the Asian financial meltdown in 1997; Paul Krugman, Professor of Economics at Princeton was pointing out as early as 1994 that this was going to happen. Like sensible economists, Krugman knows that ultimately long-term productivity, not short-term asset value, is what is the real measure of wealth.

BTW, the "couple of studies" you mention is well in the hundreds.

Some basic background in the Australian context can be found in a lengthy 1978 study (25 meg, PDF) by the Land Values Research Group

http://tinyurl.com/2vm2ws

I also wrote a fairly extensive "Education Kit" in a Victorian context.

http://grputland.com/working/edkit.html

The more you study this matter the more you will discover that land tax in lieu of any other is the best for encouraging productive investment.

What you write off as an assertion and "won't work".....is working happily for us. Good luck to your methods though. I wish you great wealth going down your path.
More goods and services, more buildings, more employment, much lower overall tax, and lower land prices. Yep, it'll work alright...
 
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