Land Tax - inviting ideas to bet it?

[Peter 14.7]

Dear All

I am in the position now to invest into mutiple IP's and therfore will be subject to land tax pretty quickly.

Any ideas how to reduce / remove.

I know tax is state by state so the first one would seem to be to buy up to the limit in each state? Also good to diversy interests?

What about ownership structure - personal, companny, trusts , et all?

Comments

Peter 147

 

[Aceyducey]

Peter,

Firstly Land Tax is a fact of life (along with Death, as in Death and Land Tax).

While you can place assets in different legal vehicles to defer land tax, in the long-run as property appreciates, you are likely to incur it. We treat it as a cost of business and factor it into the calculatations on each property.

However, to delay having to pay Land Tax you can set up multiple Trusts and buy in each such that each Trust does not hold sufficient property to incur the Tax. This will, of course, cost to set up each Trust, so the initial outlay may be more than the Land Tax you would otherwise pay over a few years....

Of course there are some other complexities, such as tax time & managing the separate accounts through the rest of the year, however if you weigh the extra hassles as less than the annual payment of land tax, go for it!

Cheers,

Aceyducey

 

[Peter 14.7]

Thanks Aceyducey

Hi Aceyducey

thanks for your reply. Just spent an hour looking at the Chris Batten site re trusts... probably subscribe to see what I can learn.

Was I right re limits state by state?

Peter

 

[geoffw]

Originally posted by Aceyducey
Peter,

Firstly Land Tax is a fact of life (along with Death, as in Death and Land Tax).

While you can place assets in different legal vehicles to defer land tax, in the long-run as property appreciates, you are likely to incur it. We treat it as a cost of business and factor it into the calculatations on each property.

However, to delay having to pay Land Tax you can set up multiple Trusts and buy in each such that each Trust does not hold sufficient property to incur the Tax. This will, of course, cost to set up each Trust, so the initial outlay may be more than the Land Tax you would otherwise pay over a few years....

I'm not quite sure on this, as I had been under the impression that, at least in NSW, any property held under thae name of a trust incurs land tax liability.

The info is in the document http://www.osr.nsw.gov.au/pls/portal/docs/page/downloads/other/lt_book_2003.pdf- but it's quite confusing.

a trustee of a trust is assessed in the same way as a sole owner unless it is a special trust

but the definition of a special trust includes "discretionary trusts" and "SOME family trusts- and those are assessed if the land value is "$5,883 or more". It looks to me as if, in NSW at least, properties in a trust do not get you out of land tax.

But, even then, it would be extremely difficult for an investor in NSW to avoid it. The threshold value in NSW for 2004 is $317,000.

I received my assessment notice in the mail today. PPOR, probably worth around $260K, has been rated with a land value of $224,000. (tax I think is 1.7% of the excess above $317,000).

Generally, PPOR is exempt- but with only two other properties in NSW, I am going to be liable.

In the ACT, land tax is payable for an investment property, with no threshold.

(There is one "out" for NSW- if I use the property to "maintain endangered animals and birds" I may be exempt )

 

[Kristine..]

Peter

Acey, as always, raises some very valid points.

Another extremely important issue to remember is that thresholds only apply to privately owned property. Non-privately owned property incurs Land Tax from the first dollar value of the property.

That threshold can be very important and take quite a lot of pain out of the tax bill.

However, from my point of view I am quite chuffed to see the Land Tax bill getting bigger each year. I don't have a problem with tax, in fact I wish I paid more of it.

Before you rush out and structure yourself into a corner, have a long and relaxed think about your long term aims and objectives.

You don't want to end up retired, ready to sit back and enjoy the income from your investments, only to find that by buying the investments in a manner relevant to your circumstances now you have severely disadvantaged yourself later.

I'd rather be paying the tax now and retaining my independence later.

Cheers

Kristine

Oh, and do keep in mind.

Not every lender is willing to lend to private companies, family trusts etc and if they do, you may be paying a commercial rate of interest with complicated guarantees and lower lending ratios as well.

Think about the whole situation before you make a decision.

 

[Joe D]

Land tax is a revenue raising state government golden goose (and IMHO totally unjustifiable).

If it was a flat rate or if it had a reasonable ceiling before it cuts in then it would be easier to swallow and one could easily factor it in, however in WA (probably like some other states) it works on an increasing %age as the land value grows.

It is effectively a wealth tax that penalises the investor.

0-50k nil
50-190k $75 plus 0.15% in excess of 50k
190-550k $285 plus 0.45% in excess of 190k
550-2M $1905 plus 1.76% in excess of 550k
2M-5M $27,425 plus 2.3% in excess 2M
$5M $96,425 plus 2.5 % in excess 5M

Consider if an investor owned say 4 properties in a decent area of Perth such that the total unimproved taxable value of the land (eg. block value) was $2M (or 10 properties each of $200k land value), then they are liable for $27,425 per annum for absolutely no gain.

Yes, it needs to be factored in , but it can easily kill the viability of a deal, particularly in a multi-unit IP.

Totally unjust and one needs to spread their IPs across a range of entities to minimise the effects.

Joe D

 

[Michael Yardney]

Originally posted by Aceyducey
Peter,

However, to delay having to pay Land Tax you can set up multiple Trusts and buy in each such that each Trust does not hold sufficient property to incur the Tax. This will, of course, cost to set up each Trust, so the initial outlay may be more than the Land Tax you would otherwise pay over a few years....

Of course there are some other complexities, such as tax time & managing the separate accounts through the rest of the year, however if you weigh the extra hassles as less than the annual payment of land tax, go for it!

Cheers,

Aceyducey

I was adviced many years ago was to own our properties in separate trusts as Acey suggets.

It has worked well but apart from the initial costs mentioned, there are now significant ongoing tax compliance costs each year.

But it is not as simple as using multiple trusts because if all the trustee companies have the same shareholders and directors they can be grouped for land tax purposes. One has to set them up intelligently - your acountant could advise you here.

The alternative is owning them in one entity and while I understand Kristine's view of being happy she has been successful enough to pay tax, I recently had a very sucessful property developer friend come to me in a panic. He just worked out his land tax liability and it was almost $1,000,000.

Paying that amount of tax takes a lot of incentive out of playing the real estate game

 

[Rickardo]

Originally posted by Michael Yardney
I was adviced many years ago was to own our properties in separate trusts as Acey suggets.

It has worked well but apart from the initial costs mentioned, there are now significant ongoing tax compliance costs each year.

Michael,

Now you have the benefit of hindsight, would you still structure your purchases in the same manner?

 

[landlubber]

Peter 147,
Start with the end in mind ...so the question is "how large do intend for your IP holdings to grow ?"

Land tax is a State tax , so , even if you "work the limits" in each
of the three Eastern States ( or buy in all if you like...) in your own name/trust/whatever, you will still be able to build a sizeable portfolio , with , shall we say, not an unreasonable land tax bill in each State.

Watch out for VIC, where the LT rate maxes at 5% per year....every year. It's bloody daylight robbery, but it's the facts !
Love them pollies !!

Once you are maxed in your own name, you can then double that in your wifes/partners/trust name, if that suits you .( it works for us.)

Also, apartments are less than houses (generally)..(less land component)
Rural/regional IPs seem to be less than city IPs.

Also, understand that LT is based on rateable value, not purchase price (sorry if I'm teaching you to suck eggs here)...so it's not as bad as it first appears if you approach it with a bit of "animal stealth and cunning."

Good hunting.
LL

 

[Jakk]

G'day all,

I am so much looking forward to the day that I receive a $1 Million Land Tax Account.

regards

 

[Peter 14.7]

Thanks Landlubber

Your advice confirms my thoughts re maxs the limit each state. I already have 1 IP in vic (both wife and me names) so you VIC insight is welcome and I will do some searching.

Any one else with idea? As for lokking forward to a $1M land tax bill I would rather look forward to what would have been that bill had I not set it up right in the first place, Like most people I have no love of tax

Peter 147

 

[Apocalypse]

Originally posted by landlubber
...Once you are maxed in your own name, you can then double that in your wifes/partners/trust name, if that suits you .( it works for us.)
...

What happens if the property is in joint names?

A husband and wife team jointly own 2 properties. Each valued the same amount. Is land tax calculated on total value or each persons share of that total?

How does this compare to if they were to each own one solely? It was asked but not answered here.

 

[Peter 14.7]

Hi Apocalypse

Regardng joint names in NSW the rules are you only get one threshold of around $255k per person or joint persons So it is much better to be in sepearte names as then you get two thresholds of that amount so $500k before tax.

Tricky isn't it. Thats why I raised the question.

So far it seems the solutiuon is :

1. buy in one name up to limit
2. buy in various states ( watch vic for land tax ans stamp duty sting)

But if buying a lot, that will get your over threshold (and eventually it will) consider hybrid trust ( still trying to learn about these things) see other posts re Hybrid Trusts.

Peter 147