Land Tax - Help!

[jingo]

Hi everyone,

Since 2001 I have slowly been accumulating properties. My accountant has told me not to worry about the land tax, and that the tax office will automatically send me a slip when I am due to pay. My land value/unimproved value is creeping up there, and as yet I haven't had a notice. I am slightly worried as I did read somewhere that it is up to the investor to contact the Land Tax office to initiate the first payment.

My situation is:

1) 1 property in a company. Low land value. (around $117,000)
2) 1 property is shared in 3 names. Land value $77,000
3) The other properties land values total around $358,000 (Equally owned by myself and my partner)
4) Have just purchased another property - not settled yet. Unimproved value is $225,000. 99% in my partner's name. 1% in my name.


I have raised the issue with my accountant in the past, but am not sure of the real state of affairs! All properties are in Victoria.

Would appreciate your advice.

Regards Jing.

 

[BV]

Hi everyone,

Since 2001 I have slowly been accumulating properties. My accountant has told me not to worry about the land tax, and that the tax office will automatically send me a slip when I am due to pay. My land value/unimproved value is creeping up there, and as yet I haven't had a notice. I am slightly worried as I did read somewhere that it is up to the investor to contact the Land Tax office to initiate the first payment.

Regards Jing.

Can you find out what the current landtax threshold value is for VIC?
You probably wouldn't reach the threshold.
Cheers

 

[geoffw]

Perhaps your accountant is not proactive enough.

I've heard rumours that an appropriate trust structure in Victoria can help get above land tax thresholds.

 

[Norwester]

Jingo..........

Here yah go.

http://www.sro.vic.gov.au/sro/SROWebSite.nsf/taxes rates.htm#10

Just scroll down the page until you get to the land Tax Rates section.

It starts at 200K...........

And from the way I have been reading the actual rulings it doesn't matter if you're part owner 'cause you still get charged as if you own the lot???? Maybe some one can clarify that?

ciao

Nor

 

[jingo]

Jingo..........

Here yah go.

http://www.sro.vic.gov.au/sro/SROWebSite.nsf/taxes rates.htm#10

Just scroll down the page until you get to the land Tax Rates section.

It starts at 200K...........

And from the way I have been reading the actual rulings it doesn't matter if you're part owner 'cause you still get charged as if you own the lot???? Maybe some one can clarify that?

ciao

Nor

Thanks Norwester,

This information was fantastic. Looks like I will have to pay. I shall contact my accountant on Monday.

Regards Jingo

 

[jingo]

Perhaps your accountant is not proactive enough.

I've heard rumours that an appropriate trust structure in Victoria can help get above land tax thresholds.

Hi Geoff,

Yes, I must go and see my accountant. I have asked him about establishing a trust, and his opinion was not yet, just wait until you accumulate more properties and transfer it in years to come. I know this will trigger a lot of costs - capital gains tax, etc. His reason for saying this was trusts cost a lot to run. I don't know anything about trusts, and would appreciate your feedback.

Regards Jingo.

 

[alexlee]

Hi Geoff,

Yes, I must go and see my accountant. I have asked him about establishing a trust, and his opinion was not yet, just wait until you accumulate more properties and transfer it in years to come. I know this will trigger a lot of costs - capital gains tax, etc. His reason for saying this was trusts cost a lot to run. I don't know anything about trusts, and would appreciate your feedback.

Regards Jingo.

I disagree with your accountant. Establishing a trust is about, in the future, streaming CG and rent. While the costs seem high now, transferring later on is even more costly, especially if you're thinking about multiple IPs over decades. To me, the biggest cost isn't stamp, but CGT.

In any case, putting assets in a trust can be done property by property: you don't have to transfer all your properties in one go so I don't understand why he says 'wait until you accumulate more'?

I also have to ask: why did you put one property in a company? A company is usually the worst entity to put a property in (no CGT exemption, no asset protection). If it's to facilitate ownership by different people, a unit trust would be better. If your accountant advised you to put a property into a company but to hold off on trusts..... you might want to speak to another accountant.
Alex

 

[jingo]

I disagree with your accountant. Establishing a trust is about, in the future, streaming CG and rent. While the costs seem high now, transferring later on is even more costly, especially if you're thinking about multiple IPs over decades. To me, the biggest cost isn't stamp, but CGT.

In any case, putting assets in a trust can be done property by property: you don't have to transfer all your properties in one go so I don't understand why he says 'wait until you accumulate more'?

I also have to ask: why did you put one property in a company? A company is usually the worst entity to put a property in (no CGT exemption, no asset protection). If it's to facilitate ownership by different people, a unit trust would be better. If your accountant advised you to put a property into a company but to hold off on trusts..... you might want to speak to another accountant.
Alex

Hi Alex,

Yes, I am beginning to wonder about our accountant. How do trusts affect borrowing capacity?

 

[alexlee]

Hi Alex,

Yes, I am beginning to wonder about our accountant. How do trusts affect borrowing capacity?

Better talk to a broker about this, but if your trust doesn't have its own independent income, you're going to have to guarantee the loan personally anyway. So it's still your serviceability that counts. i.e. a new trust (or even one with existing -vely geared property) doesn't have any extra income so no bank will lend it money: you'll have to guarantee it.

Just because someone is an accountant doesn't mean they know about property investment (I'm an accountant, and I learned nothing about property investment at work since I specialise in corporate).
Alex

 

[alexlee]

There ARE legitimate reasons for not using trusts and there ARE costs associated with setting up and maintaing trusts.

For example, if a person had no litigation risk from their job, plan to hold their properties until retirement and don't plan to buy more than a few properties, there IS a lot to be said for just holding the properties in their personal names. Bigger land tax threshold (esp in Qld), relatively low tax (with the CGT exemption you'll pay <20% if you sell after you retire and have no salary income).

Of course, if you plan to buy many properties over decades, it would make more sense to put more assets in a trust. In time properties become tax positive and you can distribute to, say, non-working partners or kids.

If these are the reasons your accountant gave, I'd be more confident of his experience / knowledge, though I may not agree with his opinion. Just because someone is knowledgeable doesn't mean their advice is the best for you (as we have all seen through the years when people suggest what we should study, what career choice we should make, what IP we should buy, etc).

However, that is very different to someone who doesn't have the experience / knowledge at all.
Alex

 

[geoffw]

I don't know anything about trusts, and would appreciate your feedback.

Spend $99 on the opinion of one of the experts- and a member of the forum.

 

[jingo]

Spend $99 on the opinion of one of the experts- and a member of the forum.

Thanks Geoff,

I'll have a good look at this.

Regards Jason.

 

[BV]

Before you shoot your accountant you should know that trusts are not suitable to everyone.
It depends on individual circumstances.
i.e . Income, profession, family size, other family member's employment, other assets etc.
Cheers

 

[jingo]

There ARE legitimate reasons for not using trusts and there ARE costs associated with setting up and maintaing trusts.

For example, if a person had no litigation risk from their job, plan to hold their properties until retirement and don't plan to buy more than a few properties, there IS a lot to be said for just holding the properties in their personal names. Bigger land tax threshold (esp in Qld), relatively low tax (with the CGT exemption you'll pay <20% if you sell after you retire and have no salary income).

Of course, if you plan to buy many properties over decades, it would make more sense to put more assets in a trust. In time properties become tax positive and you can distribute to, say, non-working partners or kids.

If these are the reasons your accountant gave, I'd be more confident of his experience / knowledge, though I may not agree with his opinion. Just because someone is knowledgeable doesn't mean their advice is the best for you (as we have all seen through the years when people suggest what we should study, what career choice we should make, what IP we should buy, etc).

However, that is very different to someone who doesn't have the experience / knowledge at all.
Alex

Thanks Alex,

Your replies are invaluable. I shall explore the pros and cons as to whether we should establish a trust for our future properties. We are planning to keep buying properties when we can, and would like to hold onto them for our daughter. (She is only 3 now!).

Regards Jason.

 

[jingo]

Jingo..........

Here yah go.

http://www.sro.vic.gov.au/sro/SROWebSite.nsf/taxes rates.htm#10

Just scroll down the page until you get to the land Tax Rates section.

It starts at 200K...........

And from the way I have been reading the actual rulings it doesn't matter if you're part owner 'cause you still get charged as if you own the lot???? Maybe some one can clarify that?

ciao

Nor

Hi Norwester,

Thanks for your help with the Land Tax scales. I have spent some time working out my liability, and it turns out that I owe about $1,100 for previous years I haven't yet paid, and $1,400 this current year. I shall contact the State Revene Office to organise payment.

Yes, you are correct about part ownership, etc. The calculations are based on the numbers of properties each owner holds. Never mind!

Thanks again,

Regards Jason.

 

[jingo]

Before you shoot your accountant you should know that trusts are not suitable to everyone.
It depends on individual circumstances.
i.e . Income, profession, family size, other family member's employment, other assets etc.
Cheers

Hi BV,

Yes, I realise that its not a 'black or white' answer. I guess what I really need to do is sit down with a professional and have them go over our situation carefully to consider all of the pros and cons of setting up a trust in our situation.

Thanks for the reply.

Regards Jason.

 

[A95]

Hi BV,

Yes, I realise that its not a 'black or white' answer. I guess what I really need to do is sit down with a professional and have them go over our situation carefully to consider all of the pros and cons of setting up a trust in our situation.

Thanks for the reply.

Regards Jason.

Hi Jason,

Very good response, however the more 'correct' approach would be for you to become professional in your investment ventures.

I would not rely on my accountant/lawyer/mortgage broker to tell me what to do!
Don't get me wrong I'll listen to everybody I have respect for but I know that the buck stops with me.

Regards,
A95

 

[alexlee]

Yes, I realise that its not a 'black or white' answer. I guess what I really need to do is sit down with a professional and have them go over our situation carefully to consider all of the pros and cons of setting up a trust in our situation.

Jingo, just get on an Australian search engine, look up 'family trusts' and download the articles, and buy all the books on family trusts you can find in the bookstore (can't be more than 10). Read them and make notes.

A95 is right. You need to understand enough yourself to know whether your accountant is giving you the right advice for you. If you don't know the basics of trusts, how they work and what they do, you can't assess your advisor's experience and knowledge.
Alex

 

[jingo]

Jingo, just get on an Australian search engine, look up 'family trusts' and download the articles, and buy all the books on family trusts you can find in the bookstore (can't be more than 10). Read them and make notes.

A95 is right. You need to understand enough yourself to know whether your accountant is giving you the right advice for you. If you don't know the basics of trusts, how they work and what they do, you can't assess your advisor's experience and knowledge.
Alex

Have found some info at www.users.bigpond.net.au/renton/942.htm A useful site which explained trusts very simplisitically. Except, I came across this paragraph:

Assets acquired directly by a trust do not involve the stamp duty and capital gains tax liabilities applying to assets which are acquired by another party in the first instance and then transferred to the trust only later on.

I take it to mean that assets acquired for a trust are excempt from stamp duty???? Can you clarify?

 

[Norwester]

Jingo,

I can sympathise with you. I tend to lose interest once it gets past the *party of the first part.............etc etc blah blah blah*..........

Much rather be reverse engineering a widget I think..........

Alex,

Why is it entirely necessary that one must educate oneself to completely understand this?

My expectation would be that if you're paying for some sort of service that you would least expect a degree of competency? Or is this not the case in the financial services sector?

'scuse the ignorance

regards

Nor