land tax and sale of proprety warning

[lizzie]

They change the rules.

this is the interesting part - i am slowly learning and am surprised how often they change the tax rules, without anyone outside of government ever realising until something hits the fan - and always to their extreme advantage.

this land tax is a great example. i fully expected to pay out everything owing for this particular property before it be released - because that is normal business practice, and we had in place (me with the osr) and agreement to pay out the debt over 6 months - so assumed the other properties would continue on and be paid out over the 6 months ... as per normal business practice.

should've known better. but as kissfan said - it'll all be out of the way

 

[WildDog]

Hi Lizzie,

I'm sorry to hear you have copped another blow.

Land tax is my most hated cost associated with property investing. But I have found a way to avoid it - I no longer invest in property. Nowadays its only quality dividend paying shares. Better income, no tenants, repairs, renovations, rates, PMs, land taxes, stamp duty etc etc. And the transaction costs are a tiny fraction of those associated with buying and selling property.

I just got so annoyed with State and local Governments using property as a cash cow.

Anyhow it is not my intention to turn this into a shares vs property debate. We still own a number of IPs but have grown tired of all the costs and hassles associated with property ownership.

Cheers - Gordon

I'm with you there...GST suppose to get rid most of these tax but the state are getting greedy and didn't honor it.. I remember paying stamp duty on shares and thanks god they are all gone thanks to GST make buying and selling much much more profitable

 

[Novar]

I've never had to pay land tax in Qld.... touch wood.
I've heard it mentioned time and time again and presumed it was not a common thing.
What's the story in Qld ..?

 

[INVSTOR]

ouch. yes land tax is one of those dirty little taxes that state labor govts have been robbing us all of. it doesnt sound like a lot of money till you get one big property or a few in one entity, then slug! the tax you have when you shouldn't have a tax. I saw eric ripper at cable beach club about a week ago and i wanted to get his pina colada and shove it in his face - seeing him there blowing my hard earned tax dollars that don't belong to him made me feel sick.

ooooh - What a shame, that would of recked your day!

 

[yo yo ma]

I've never had to pay land tax in Qld.... touch wood.
What's the story in Qld ..?

The Queensland land tax threshold for individuals/ couples is $600k (excluding PPoR) for 2007-08.

http://www.osr.qld.gov.au/taxes/land/faq.shtml

 

[Novar]

The Queensland land tax threshold for individuals/ couples is $600k (excluding PPoR) for 2007-08.

http://www.osr.qld.gov.au/taxes/land/faq.shtml

ok thanks

How much is it in other states, do you know?

 

[yo yo ma]

How much is it in other states, do you know?

Yes, see my post below for all the figures

http://www.somersoft.com/forums/showpost.php?p=356454&postcount=32

 

[lizzie]

and then yesterday the rusty, noisy old box in the corner of the kitchen decided to blow up ... no choice but to buy a new fridge there an then.

damn - i was only wanting it to hang in there for another 3 months!

 

[JoannaK]

A bit off topic here but to JoannaK, is that your development which is on your sig? Very impressive indeed. Is it being built already or you looking at pre-sales to get the financiers to come to the party? Some very nice finishes too. Have you done a cost estimate? Wonder what something like that has come in at with the lifts, basement parking, pools..etc.. $3-$4k/m2?

Hi asdf,

Yes, the development in my sig is my latest project. Construction has been completed and it's selling now. We didn't undertake pre-sales.

Thanks for the comments on finishes; it's the female touch!

Construction came in at just below $2,600 per square metre for livable space only; but you have to add on balconies, common areas, basements, pool and lift.

 

[Bandita]

i wanted to post this in the general discussion, because thought it might get lost in the tax/accountanting section - and i wanted as many people as possible to learn from this lesson.

a warning about selling property out of a trust/company ... we've sold our elephant (cooling off ended yesterday) and we've got a rather large land tax bill outstanding for various properties held by the same company, going back 5 years due to a string of stuffups by osr and accoutant (and therefore ultimately myself - ignorance is not a defence).

i've spoken to land tax about paying out the bill for "the elephant" at the time of settlement, only to be told that according to legislation "everything" outstanding and still owing by the company to the osr has to be paid out at time of settlement to release the one property.

so instead of a land tax bill of $7,500 at time of settlement and the balance paid off over the next 5 months, we have to pay $22,000 in one lump. it does mean that we then don't owe anything further - but heck! another $14,500 out of our cashflow.

going from bad to worse really!

Hi Lizzie,

What type of trust were the properties held in? I'm trying to understand if a property is purchased in a HDT (in NSW) if it is subject to the land tax threshold or not?

Thanks!

Cheers,
Jen

 

[handyandy]

Hi Lizzie,

What type of trust were the properties held in? I'm trying to understand if a property is purchased in a HDT (in NSW) if it is subject to the land tax threshold or not?

Thanks!

Cheers,
Jen

Hi Jen

There is no landtax threshold for any trusts in NSW. Land tax for the full unimproved value at 1.6% or thereabouts.

It did used to be that unit trust were able to get the threshold but that was withdrawn.

Cheers

 

[Bandita]

Hi Jen

There is no landtax threshold for any trusts in NSW. Land tax for the full unimproved value at 1.6% or thereabouts.

It did used to be that unit trust were able to get the threshold but that was withdrawn.

Cheers

Thanks handyandy,

This is where I'm getting confused - on the NSW Office of State Revenue Website, it says that "fixed trusts" and unit trusts with "restructured deeds" receive the land tax threshold - if this is true, can HDT's fall into the category of fixed trusts? or possible have the modified deeds necessary to receive the land tax threshold?:

http://www.osr.nsw.gov.au/taxes/land/faqs/:

For land tax purposes, trusts are divided into five categories:

*fixed trusts
*concessional trusts
*superannuation trusts
*special trusts
*unit trusts.

A fixed trust is a trust where the beneficiaries are considered to be owners of the land at the taxing date of midnight on 31 December prior to the tax year. Land tax in 2008 is calculated at 1.6 per cent on the combined value of the taxable land owned above the land tax threshold plus $100.

A concessional trust is a trust where the land in the trust is held for the benefit of a person who is:

* under 18 years of age, or
* subject to a guardianship order under the Guardianship Act 1987; or
* in the 'target group' under the Disability Services Act 1993 (NSW)
* Guardianship Act 1987
* Disability Services Act 1993 (NSW)

Land tax for concessional trusts in 2008 is calculated at 1.6 per cent on the combined value of the taxable land owned above the land tax threshold plus $100.

A superannuation trust which is a complying superannuation fund, a complying approved deposit fund or a pooled superannuation trust under Sections 42, 43 & 44 respectively of the Superannuation Industry (Supervision) Act 1993 of the Commonwealth is calculated in 2008 at 1.6 per cent on the combined value of the taxable land owned above the land tax threshold plus $100. If a superannuation trust is not a complying or pooled trust and is not a fixed trust, it is a special trust.

A special trust is a trust where the trustee is the only person who meets the definition of ‘owner’ for land tax purposes and the beneficiaries are not considered to be owners. If a trust does not meet one of the previous trust definitions, it is a special trust. Examples of special trusts include most family trusts and discretionary trusts. The land tax threshold does not apply to special trusts which, in 2008, are taxed at a flat rate of 1.6 per cent.

A unit trust is a trust in which the unit holders are entitled, under the trust deed, to a fixed proportion of any distribution of income (income units) or capital (capital units) or both income and capital. Generally unit trusts are special trusts. From 2006, 'family-held unit trusts' may be assessed as fixed trusts after completing a 'unit trust declaration form'. Other unit trusts may undertake to restructure the trust deed so as to be then classified as a fixed trust.

 

[asdf]

HeyJend,

I was on the NSW OSR site the other day and noticed that language was removed also for 2008 rates. If you went to the calculator section, it states in previous years that the thresholds do not apply to fixed trusts as discussed here.

They did a few changes in the recent budget, including wiping mortgage duty for investment propertues. Perhaps they have stopped discriminating against trusts and companies. Time to set up the trusts again for each IP in NSW...

 

[Bandita]

HeyJend,

I was on the NSW OSR site the other day and noticed that language was removed also for 2008 rates. If you went to the calculator section, it states in previous years that the thresholds do not apply to fixed trusts as discussed here.

They did a few changes in the recent budget, including wiping mortgage duty for investment propertues. Perhaps they have stopped discriminating against trusts and companies. Time to set up the trusts again for each IP in NSW...

Hi asdf,

Where would you classify a "hdt" trust? I'm struggling with this. Our's has a trustee, which is a company, and the income is only distributed to my husband (the only unit holder) - therefore could the trust be considered a "fixed trust" and my husband the only owner of the land?? I've got no idea? I've never heard of "fixed trust" before reading those tax rules on the NSW website?

Would love to hear people's thoughts on HDT and NSW land tax. I believe Lizzie has posted that she has not had to pay land tax on the properties in her HDT - as they were under the threshold - while others have posted that they've had to???

Cheers,
Jen

 

[handyandy]

Hi Jen

Looks like the OSR has changed their mind again amd given the threshold back to fixed trusts

The original PIT was designed around a unit trust to gain the threshold (Chan & Naylor) but was then no longer able to make use of the threshold. Maybe they can now again and all those people haven't done their dough.

In the context mentioned the HDT is a fixed trustm, as it has defined beneficiaries, but maybe because it can change, it may still fall outside of this definition.

Maybe the way it identifies the beneficiaries is how the threshold is lost. Because a person(s) is identified and all land values are then aggregated over all their property holdings they miss out on the threshold simply through aggregation.

Cheers

 

[josko]

That's really bad news Lizzie,

I sold a couple of properties in the boom in QLD and knew nothing about the potential land tax issue.

Luckily i didn't have to worry about paying land tax, but thanks for the warning. My IP's in NSW were bought in our names when I first started investing. I don't know whether I'm lucky or not?

Regards Jo

 

[Xenia]

It would be nice to believe that the liberal government not having as much of a "steal from the rich" attitude would be wise enough to reverse it if they get in during the next election.

However once introduced the government revenue stream is way to great for them to even contemplate abolishing it.

Anyone in politics know how to work with this now?

What would be a logical step in trying to reverse or lessen the impact?

Are there any successful proactive lobby groups out there? Who are they?

The impact on personal financial planning is huge for future investors. On the one hand there is an encouragement towards financial independence during retirement and compulsory superannuation is an example of a recognition of the financial problems of society and on the other hand there is a huge penalty such as $18,000 in land tax for investors who have stepped up to the responsibility of owning more than 2 to 3 properties. This is a paradox which does not really help anyone!

Can anyone recomend a proactive solution here?