Land Tax on new purchase

[Dianab]

Hi Everyone, I just received my land tax and almost had an heart attack.

I have 3 different investment properties all in NSW. I purchased my last property on the 15th December 2014.

My question is shouldn't my land tax be valued for the 2 weeks i owned the property in 2014?

My recent purchase had added an additional 8k to my tax bill

 

[Biz]

Yes. It is levied based on whoever holds the land at December 31. So even if you only held the property from mid December you are liable for the entire year.

My recent purchase had added an additional 8k to my tax bill

Why the shock? you should have known that before you purchased.

 

[Dianab]

I wish i did.

Kicking myself right now, and i actually thought about buying it under a trust.

Thanks for your help but doesnt seem fair, should be based on pro rata system.

 

[Paul@PFI]

Hi Everyone, I just received my land tax and almost had an heart attack.

I have 3 different investment properties all in NSW. I purchased my last property on the 15th December 2014.

My question is shouldn't my land tax be valued for the 2 weeks i owned the property in 2014?

My recent purchase had added an additional 8k to my tax bill

Surely as a investor you realise that if total land exceeds $432K (unimproved land value) its subject to 1.6% (or higher). Land tax also applies AS AT 31 December at midnight. (In NSW). Its not pro-rata. You acquired a new property with unimproved land valued at $500K...It was inevitable.

You should really have considered this + structuring to minimise land tax and the date of the settlement before you entered into the contract. If you had settled the loan on 3rd January the tax would apply from next year.

You next post will be to ask can you fix this now ?? No. Not without stamp duty consequences.

 

[Dianab]

Is there a fix?

Silly me i rented it out before it even settled, if i waited till the new year and and lived in it for a couple of weeks, i could have saved 8k,

If there is any way of fixing this please let me know or is my only option is to somehow try and find the money. (money which i dont actually have at the moment)

I bought my Second property in 2013 and recieved my first land tax last year and i didnt even think about land tax when i purchased the house this house.

To be honest this purchases has been hell. I had a vendor from hell, who drove me, the agent and both mine and the vendors solicitors nuts. The purchase was meant to settle on the day of the sydney seige, which had to be delayed.. and guess what he did.. yes he made me pay interest for the two days delay.

 

[Paul@PFI]

Is there a fix?

See my last line of the post above.

Silly me i rented it out before it even settled, if i waited till the new year and and lived in it for a couple of weeks, i could have saved 8k,

Wrong. There is a six month rule.

If there is any way of fixing this please let me know or is my only option is to somehow try and find the money. (money which i dont actually have at the moment)

I bought my Second property in 2013 and recieved my first land tax last year and i didnt even think about land tax when i purchased the house this house.

To be honest this purchases has been hell. I had a vendor from hell, who drove me, the agent and both mine and the vendors solicitors nuts. The purchase was meant to settle on the day of the sydney seige, which had to be delayed.. and guess what he did.. yes he made me pay interest for the two days delay.

My comments in bold. You bought a property with unimproved land of $500K and you didn't expect land tax ?? Oh boy. Its one of the golden rules in investing. Spread the tax liability. ie buy QLD next, or WA etc... A separate threshold for each state.

I would make a payment arrangement. Unpaid land tax can result in forced sale in worst examples. OSR unpaid land tax is a first charge too. If the property is intended to be rented the tax is deductible across the affected properties - A small consolation.

 

[Scott No Mates]

I wish i did.

Kicking myself right now, and i actually thought about buying it under a trust.

Thanks for your help but doesnt seem fair, should be based on pro rata system.

Most trusts in NSW (and other states) do not receive the benefit of the threshold. OSR Trust Leaflet

 

[geoffw]

I wish i did.

Kicking myself right now, and i actually thought about buying it under a trust.

Thanks for your help but doesnt seem fair, should be based on pro rata system.

It's completely unfair. But it's so much easier for the government to administer this way. It probably won't change.

 

[Dianab]

Thanks everyone for your comments.

I can confidently say.. lesson learnt But it is frustrating as it wasn't expected, as my last bill was only 2.5k.

The only way i could have avoid this was by delaying settlement until the new year, which i did actually suggest as settlement was 90days, but vendor did decline.

I guess its an expenses ill have to forecast for next year.

 

[Rob G.]

Interestingly, rates are normally adjusted between purchaser and vendor at settlement.

However, a vendor who is selling their PPOR would not be interested in sharing the land tax that a purchaser may be liable for by using as an IP !!!

 

[Dianab]

Thanks everyone for your comments.

I can confidently say.. lesson learnt But it is frustrating as it wasn't expected, as my last bill was only 2.5k.

The only way i could have avoid this was by delaying settlement until the new year, which i did actually suggest as settlement was 90days, but vendor did decline.

I guess its an expenses ill have to forecast for next year.

 

[neK]

Thanks everyone for your comments.

I can confidently say.. lesson learnt But it is frustrating as it wasn't expected, as my last bill was only 2.5k.

The only way i could have avoid this was by delaying settlement until the new year, which i did actually suggest as settlement was 90days, but vendor did decline.

I guess its an expenses ill have to forecast for next year.

Im sure if you didnt settle, you would have received a notice to settle, followed by an interest penalty.

Tiny amount in comparison to what you paid in land tax.

Anyway, lesson learned. Time to move on.

That said, you were in a position to buy another IP in Sydney. Good stuff, most people aren't. So look on the brighter side of things (assuming sydney, based on the land tax payable)

 

[Paul@PFI]

Thanks everyone for your comments.

I can confidently say.. lesson learnt But it is frustrating as it wasn't expected, as my last bill was only 2.5k.

The only way i could have avoid this was by delaying settlement until the new year, which i did actually suggest as settlement was 90days, but vendor did decline.

I guess its an expenses ill have to forecast for next year.

You could have avoided the land tax altogether if you bought a property in any state other than NSW. Its really a strategy that all investors with a land tax bill (should firstly) consider. Whats done is done. Tip : Buy elsewhere next time.

One of the problems with land tax is it keeps increasing. As your property value rises so will the tax. Sure the threshold is indexed but I cant say I have ever seen a land tax assessment fall due to threshold increasing. Reality is value rises faster than the threshold.

Delaying settlement doesn't work. In most contracts there will be a clause (as the vendor will have made sure it was there !!) which imposes any land tax that the vendor incurs onto the buyer. If it was a former PPOR for the vendor then no issue. But if they incur a land tax bill they will pass it to you at the delayed settlement.

 

[RetireRich101]

If a property is under joint husband and wife name.
If say the husband name is removed from the property title, what other the charges that I am up for? How to go about it?

This is an attempt to reduce unimproved land ownership in joint names, as for me it is exceed the threshold, but individual names still haven't.

 

[Paul@PFI]

Stamp Duty on 50% of the market value of the property.
and CGT based on the 50% disposal. (based on market value). OSR will require a valuation and you cant choose $1 as the consideration.

Do the maths before acting.

 

[Terry_w]

If a property is under joint husband and wife name.
If say the husband name is removed from the property title, what other the charges that I am up for? How to go about it?

This is an attempt to reduce unimproved land ownership in joint names, as for me it is exceed the threshold, but individual names still haven't.

Don't forget the other consequences - deductibility of interest, estate planning, asset protection - and changes to land tax laws!

 

[Dianab]

Hi paul,

My sister got burnt investing in a different state and ive heard some awful stories and i doubt ill ever go down that path. But if you have the time to do your research and able to find a good pm i dont see why not, but i believe the sydney market is always the safest.

I do plan in moving into one of the houses this year so next yrs bill wont be as excessive.

I love investing in properties... wish i had money to buy another one.

 

[neK]

Delaying settlement doesn't work. In most contracts there will be a clause (as the vendor will have made sure it was there !!) which imposes any land tax that the vendor incurs onto the buyer. If it was a former PPOR for the vendor then no issue. But if they incur a land tax bill they will pass it to you at the delayed settlement.

Can't say i've seen it. Do you know how the clause is normally worded?

(I actually think all the contracts I've looked at always have the Land Tax part ticked as no on the front page... perhaps thats why ive never noticed it?).

 

[Terry_w]

Hi paul,

My sister got burnt investing in a different state and ive heard some awful stories and i doubt ill ever go down that path. But if you have the time to do your research and able to find a good pm i dont see why not, but i believe the sydney market is always the safest.

I do plan in moving into one of the houses this year so next yrs bill wont be as excessive.

I love investing in properties... wish i had money to buy another one.

I bet there are people who got burned investing in property in NSW. Its like saying I won't eat Berry's because...

If you want to invest in NSW you could consider other structures - but with more to consider than land tax.

 

[travelbug]

I don't think it's for the last year. You are paying for this year.

That is why if someone sells this year they have paid the tax and try to get the buyer to reimburse them for their share of the tax.