Land Tax versus Strata Fee

[THEGREAT888]

Hi Members

We often consider that land tax is a burden to our property investment.

I wonder what members think of Strata Fees?

Aren't they comparable objects?

Both are not the tool to increase the value of the property

Would you have rather purchased a house with a land tax imposition rather then a unit with strata fees if you felt the two comparable property growth relatively the same?

Please share your thought and please give examples if possible

t

 

[travelbug]

You can't compare strata with land tax.

You still pay land tax on a unit anyway. Sure it may be a bit lower than a house (but not always). I have a 26sq unit which has a higher land value than some of my houses (similar purchase price).

Strata fees include maintenance, lawn upkeep etc. So iIf you have a house you need to add those costs as well.

 

[wategos]

Strata fees are to cover insurance and maintenance which you pay much more for with a house. House maintenance alone would typically be more than double your average strata fees.

 

[Rixter]

Land Tax & Strata Fee's are also tax deductible.

 

[DaveM]

Land Tax & Strata Fee's are also tax deductible.

Strictly speaking only the admin fund portion of strata levies are deductible as the sinking fund portion is of a capital works nature. That being said, everyone seems to just claim it all

 

[Rixter]

That being said, everyone seems to just claim it all

Who is everyone Isn't tax evasion illegal?

 

[twobobsworth]

Are you sure Dave?

From ATO website:

Payments you make to body corporate administration funds and general purpose sinking funds are considered to be payments for the provision of services by the body corporate and you can claim a deduction for these levies at the time you incur them. However, if the body corporate requires you to make payments to a special purpose fund to pay for particular capital expenditure, these levies are not deductible. Similarly, if the body corporate levies a special contribution for major capital expenses to be paid out of the general purpose sinking fund, you will not be entitled to a deduction for this special contribution amount.

Source - http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=/content/00270214.htm&page=9

 

[DaveM]

Are you sure Dave?

From ATO website:

Interesting, seems to have been amended since the last time I really looked into it a few years ago. There used to be a division of deductibility on the admin vs sinking, looks like its now only for special purpose funds/special levies and general sinking are fine.

Thats why I let my accountant process it all, so I dont have to keep current.

 

[Rixter]

Are you sure Dave?

From ATO website:

Payments you make to body corporate administration funds and general purpose sinking funds are considered to be payments for the provision of services by the body corporate and you can claim a deduction for these levies at the time you incur them. However, if the body corporate requires you to make payments to a special purpose fund to pay for particular capital expenditure, these levies are not deductible. Similarly, if the body corporate levies a special contribution for major capital expenses to be paid out of the general purpose sinking fund, you will not be entitled to a deduction for this special contribution amount.

Source - http://www.ato.gov.au/individuals/content.aspx?menuid=0&doc=/content/00270214.htm&page=9

Geeze Dave, I thought you were implying this forum was full of tax evasion specialists there for a moment. You really should check your facts before posting and having to eat humble pie.

 

[DaveM]

Geeze Dave, I thought you were implying this forum was full of tax evasion specialists there for a moment. You really should check your facts before posting and having to eat humble pie.

No idea where you got that idea from. Everyone means, well, everyone, not somersoft in particular, and now its obvious why that is the case. There are actually some threads from years ago on this very forum about this very matter.

As for fact checking and humble pie, I am not sure why you feel it necessary to make an issue of when someone makes a mistake. Nobody is infallible and I welcome any corrections to ensure that things are accurate.

 

[buzzlightyear]

The question, at least for those with landholdings that exceed the land tax threshold in a particluar jurisidiction is the marginal impact a purchase has on your liability.

Consequently, in my circumstances, a 200k site value will have an impact of increasing my land tax bill by $1600pa. That would mean a house worth approx $380k in middle suburbs of Melbourne (based on a similar property that I own). Compare that to a site value of an inner city apartment which has a site value of $83k, and is worth around $475k (based on bank val 4 weeks ago - also one that I own.

For me, if I was to purchase another one of these properties, the costs are;
The marginal impact of owning the house is $1600 land tax plus $1,143.95 for rates. All up $2743.95.

The marginal impact of owning the apartment is $664 increase in land tax plus $888.15 rates plus $1380 owners corp fees (not including sinking fund). All up $2274.79

If you are coming off lower marginal land tax rates, then the house becomes less expensive relative to the apartment. So its horses for courses.

But you can also invest interstate if you want to avoid land tax. Owners corp or body corp fees (whatever we call them) are unavoidable in any jurisdiction.

But ultimately, my decision would still be based on the core fundamentals ie net after tax yield & capital growth potential. I think for most investors the imposition of land tax v strata fees would be irrelevant unless you had sizeable holdings.

 

[wategos]

For me, if I was to purchase another one of these properties, the costs are;
The marginal impact of owning the house is $1600 land tax plus $1,143.95 for rates. All up $2743.95.

The marginal impact of owning the apartment is $664 increase in land tax plus $888.15 rates plus $1380 owners corp fees (not including sinking fund). All up $2274.79

You're forgetting maintenance of the house, which is typically many thousands more than maintenance of an apartment. House maintenance is usually between $2000 and $8,000 a year (I spent about 25K maintaining, not improving, a house I had for 8 years), so it's pretty rare that it's cheaper than an apartment.

 

[buzzlightyear]

You're forgetting maintenance of the house, which is typically many thousands more than maintenance of an apartment. House maintenance is usually between $2000 and $8,000 a year (I spent about 25K maintaining, not improving, a house I had for 8 years), so it's pretty rare that it's cheaper than an apartment.

Maintenance between $2k & $8k? That sounds high to me.

Left off maintenance, because in my experience unless the house is older and needs a refresh, maintenance is minimal. Most of things that need to be fixed are those being used by tenants (ie wear and tear) and that happens in any property type.

I renovated a house in Windsor (Melb) in 2008 and have had $350 in maintenance in that time.

 

[devank]

Consequently, in my circumstances, a 200k site value will have an impact of increasing my land tax bill by $1600pa....

Sadly land tax on that 200K site would cost $3200.00 in NSW! Median price is above 500K. So I would expect the median land value to be about 350K. That would cost $5600.00 in land tax alone!

The marginal impact of owning the apartment is $664 increase in land tax plus $888.15 rates plus $1380 owners corp fees (not including sinking fund). All up $2274.79

Don't forget that strata fees generally include the building insurance and water usage as well.

Like buzzlightyear said "horses for courses".

 

[buzzlightyear]

....Don't forget that strata fees generally include the building insurance and water usage as well.....

Very true re insurance. Good pick up. That would add another $800-1000 pa to the house cost.

In my specific circumstance, no water bills however.

 

[wylie]

It is in times like we have now, when house prices are stagnant or decreasing, that I really hate paying land tax. When prices are rising, it is easier to stomach.

 

[skater]

Strata fees are to cover insurance and maintenance which you pay much more for with a house. House maintenance alone would typically be more than double your average strata fees.

Not at all true.

You're forgetting maintenance of the house, which is typically many thousands more than maintenance of an apartment. House maintenance is usually between $2000 and $8,000 a year (I spent about 25K maintaining, not improving, a house I had for 8 years), so it's pretty rare that it's cheaper than an apartment.

Not sure what was wrong with your house, but that is VERY high. Is that the only IP you have, because that seems a rather one dimensional view.

Maintenance between $2k & $8k? That sounds high to me.

Left off maintenance, because in my experience unless the house is older and needs a refresh, maintenance is minimal. Most of things that need to be fixed are those being used by tenants (ie wear and tear) and that happens in any property type.

I renovated a house in Windsor (Melb) in 2008 and have had $350 in maintenance in that time.

I have to admit that this is my experience also. A brief look the maintenanace cost of some of my portfolio over the last year, taken at random:
1) House - $773
2) House - $2023
3) 2 Houses on one block - $1725 (combined)
4) Unit - $364
5) House - $99

House No 2 had much higher than normal due to some maintenance on the pool. Did I mention I hate pools? Anyway I digress...

As you can see, there are no huge scarey maintenance fees for these houses. Yes, the unit is less than all other than the last house, but it also attracts Strata Fees. All of the houses are older and in good conditon, but they could all do with a bit of a refresh. The unit was not long ago renovated.

I do have more examples, and they all run pretty similar numbers.

 

[wategos]

Not sure what was wrong with your house, but that is VERY high. Is that the only IP you have, because that seems a rather one dimensional view.

No I've had/have houses & units, the units are always WAY cheaper than the houses.

Houses have (with rough amounts I spent over 8 years for 1 house):
Roofs & Gutters (2k, can cost 10k+ when the roof needs replacing)
Inside & Outside walls, floors, garages, slabs (3k)
Outside wooden verandahs (6k to repair to safe standard)
Fences, Gardens (2k)
More vulnerable to Pests (termite inspections & eradications 3k)
External plumbing & electrics, maybe septic (2k)
Internal repairs & replacements (4k)
etc.etc.

Really If you're spending less than 1k a year average on maintenance well your house is slowly disintegrating. Might get away with it for a while but one day it will become uninhabitable.

 

[skater]

No I've had/have houses & units, the units are always WAY cheaper than the houses.

Houses have (with rough amounts I spent over 8 years for 1 house):
Roofs & Gutters (2k, can cost 10k+ when the roof needs replacing)
Inside & Outside walls, floors, garages, slabs (3k)
Outside wooden verandahs (6k to repair to safe standard)
Fences, Gardens (2k)
More vulnerable to Pests (termite inspections & eradications 3k)
External plumbing & electrics, maybe septic (2k)
Internal repairs & replacements (4k)
etc.etc.

Really If you're spending less than 1k a year average on maintenance well your house is slowly disintegrating. Might get away with it for a while but one day it will become uninhabitable.

So......you bought an older home which had maintenance issues, and items of high maintenance and because of that, you assume that MY places are becoming uninhabitable?

I'm sorry, but some of the above comes down to IP selection and is not representative of an average IP.

 

[jingo]

Buying a flat, unit or townhouse which has strata fees can be a strategy to buy into an area which historically has high capital growth. (eg inner areas of a capital city). The land tax on these purchases can be lower than that of a house (but not always), in fact, if you buy well the flat, unit or townhouse should have as high a percentage of land value as possible.

The problem with land tax is that(in Vic at least) it has a cumulative effect, meaning that continually adding to the portfolio in one state becomes unviable. Ways around this are to buy in different entities, although this also has tax consequences.

The problem with strata fees is that as an investor with only one property in a complex you have little say or control over how the money is spent or in annual fee increases.

Property outgoings stay with a resi investor for as long as they hold their portfolio and they need to be factored into any strategy as you build your portfolio.

I know this is beyond the scope of this thread, but I think there comes a time when an investor needs to consider other asset classes (shares or com prop) as the imposition of resi holding costs strips out a significant percentage of the rent received.