Minimising Land Tax in NSW

[neK]

How would one minimise the amount of Land tax payable on properties in NSW?

For example:

Client: Land value of $500,000
Estimated Land Tax ($500,000-$412,000) x 1.6% + $100 = 1,508

Spouse: Land value of $550,000
Estimated Land Tax ($550,000-$412,000) x 1.6% + $100 = 2,308

Planning on buying a 3rd property, estimated Land value of $600,000

What is the best way to reduce land tax?

Going off the OSR site, it appears that at this level, there is about $100 difference between buying property 3 in a trust vs joint.

Can't buy the property in SMSF as there is not sufficient funds.

 

[The Fence]

What is the best way to reduce land tax?

Sell up or buy in other states.

Otherwise be happy its a cost of doing business and it's 100% claimable on your tax.

 

[neK]

No innovative ways?

Selling up isn't an option.
Want one more in NSW

 

[Scott No Mates]

Set up smsf with partner/spouse.
Contribute your maximum ($25k/$35k each depending upon your ages)
Purchase either inside SMSF or as JV with you/spouse outside of super (via unit trust etc).

 

[Terry_w]

A SMSF can borrow too

A company gets a separate threshold.

 

[The Fence]

So the costs of all these setups not accounted for?

Just to minimise Land tax?

SMSF...too long until pay day for my liking.

I thought property investing was for more control, the here and now or do what you want when you want thing ?

 

[Terry_w]

I thought property investing was for more control, the here and now or do what you want when you want thing ?

Property investing is about making money. Minimising taxes can spped things up and super should be part of the overall plan.

Any structure set up and running costs should be taken into account.

Land tax in NSW is 1.6% per year so on a $400,000 land component that is $6400 per year which is a significant sum. If a property can be held in a SMSF and thereby this fund gets the threshold that would be a significant saving over the next 30 years not to mention all the usual savings with a SMSF including management fees and taxes.

 

[neK]

The SMSF path is of interest, however how would i go about it in this situation?

These are arbitrary numbers only

Say I have $240,000 in super (combined between me and & spouse).
I want to buy a place for $1,000,000.
I intend to do some development work which i estimate to around $400,000.

Correct me if I'm wrong, but my understanding is that i CAN borrow to buy, but i CANNOT borrow to do renovations/development.

So 20% deposit of $1,000,000 = $200,000 (from super balance)
80% borrow of $1,000,000 = $800,000 (from lender)
Stamp Duty = $40,000 (from super balance)

Where would i get the funding for $400,000 for developement? I'm pretty sure I can't borrow it within the SMSF.

Normally I would use equity from other properties to fund the build (no x-coll). So while i could use the equity, make a non concessional contribution into super, the interest costs from the equity loan would not be tax deductible.

 

[Scott No Mates]

Tossing ideas in the air here, an external unit trust to the smsf would have the capacity to borrow for the development.

If you are able, bring forward 3 years contributions into the smsf.

When the fund has the money it can buy the units from the unit trust allowing the trust to pay out its debt.

 

[Paul@PFI]

Tossing ideas in the air here, an external unit trust to the smsf would have the capacity to borrow for the development.

If you are able, bring forward 3 years contributions into the smsf.

When the fund has the money it can buy the units from the unit trust allowing the trust to pay out its debt.

Not quite. The Unit Trust must satisfy EVERY element of SIS reg 13.22C and Reg 13.22D at all times. Its often not easy.
- Ungeared unit trust. The trust property cannot be used as loan security (at all)
- Lease etc. No use by related parties whatsoever
- No other investments in the trust. (That the plain English explanation)

One other option that is often ignored but is a very relevant strategy for some SMSFs can be to do a SMSF borrowing but don't use a major bank....This can work if the members have equity in other property. They use these funds and lend the money to the SMSF (just like a bank). This can bypass some rigorous lending rules relating to SMSF loans etc. Detailed advice needed of course by someone experienced in these issues.

 

[Paul@PFI]

The SMSF path is of interest, however how would i go about it in this situation?

These are arbitrary numbers only

Say I have $240,000 in super (combined between me and & spouse).
I want to buy a place for $1,000,000.
I intend to do some development work which i estimate to around $400,000.

Correct me if I'm wrong, but my understanding is that i CAN borrow to buy, but i CANNOT borrow to do renovations/development.

So 20% deposit of $1,000,000 = $200,000 (from super balance)
80% borrow of $1,000,000 = $800,000 (from lender)
Stamp Duty = $40,000 (from super balance)

Where would i get the funding for $400,000 for developement? I'm pretty sure I can't borrow it within the SMSF.

Normally I would use equity from other properties to fund the build (no x-coll). So while i could use the equity, make a non concessional contribution into super, the interest costs from the equity loan would not be tax deductible.

I would talk to Shahin from Elite Property Finance who treads this forum. He is a broker doinga number of these deals and has a lender that will consider doing a 100% LVR lend to a SMSF.. Obviously other security is used on top. He also is familiar with other ways to get $ into the deal.

 

[neK]

One other option that is often ignored but is a very relevant strategy for some SMSFs can be to do a SMSF borrowing but don't use a major bank....This can work if the members have equity in other property. They use these funds and lend the money to the SMSF (just like a bank). This can bypass some rigorous lending rules relating to SMSF loans etc. Detailed advice needed of course by someone experienced in these issues.

I would talk to Shahin from Elite Property Finance who treads this forum. He is a broker doinga number of these deals and has a lender that will consider doing a 100% LVR lend to a SMSF.. Obviously other security is used on top. He also is familiar with other ways to get $ into the deal.

Interesting.....

Aren't there rules as to how much the SMSF can borrow against a particular asset? Or is that just a bank imposed thing?

I know you can't borrow stamp duty, set up costs etc, but 100% finance? That sounds like a good avenue.

As for using equity, I don't have sufficient on other properties to borrow $1m in my name, then lend it to the SMSF.

I had a read of Shahin's post.... i really don't like the x-coll part and "Impossible to refinance the property sitting outside of the SMSF to another if need be."

Tell if this is possible (and still have the SMSF remain complying)

• SMSF Bare trust buys property
• Lender lends 80% to the SMSF bare trust, using property as security
• I borrow 20% against my equity, then I as the "lender" on lend this to the SMSF bare trust

 

[Terry_w]

Tell if this is possible (and still have the SMSF remain complying)

• SMSF Bare trust buys property
• Lender lends 80% to the SMSF bare trust, using property as security
• I borrow 20% against my equity, then I as the "lender" on lend this to the SMSF bare trust

[/QUOTE]

This may be possible. Get some legal and financial advice on the situation.

There is no legislation against borrowing a certain amount just the trustee common law duties. So I would talk to shahin about the 100% product. Imagine getting the profits taxes at a max of 15% but possibly much less.

 

[neK]

Do you think this is a rather gray area where there are two lenders for the one property?

Does it contravene any acts?

 

[Paul@PFI]

Tell if this is possible (and still have the SMSF remain complying)

• SMSF Bare trust buys property
• Lender lends 80% to the SMSF bare trust, using property as security
• I borrow 20% against my equity, then I as the "lender" on lend this to the SMSF bare trust

This may be possible. Get some legal and financial advice on the situation.

There is no legislation against borrowing a certain amount just the trustee common law duties. So I would talk to shahin about the 100% product. Imagine getting the profits taxes at a max of 15% but possibly much less.[/QUOTE]

This is a old scheme the Commissioner reckons doesn't work. First bit is getting Gadens etc to sign off. They wont. Its been asked many many times.

The hardest part will be settling the transfer of title for your loan portion...You think a Bank will allow that...They wont. Your portion is also a non-arms length loan if its unsecured. Reality is your portion is an ineffective loan... Hence a its contribution Probably breach of caps.

The recourse nature against other fund assets may be a concern.

 

[neK]

I had a feeling this might be the case, thanks for confirming guys.

So what other options are possibly available?

 

[Terry_w]

Do you think this is a rather gray area where there are two lenders for the one property?

Does it contravene any acts?

What are you asking about?

A smsf can borrow money from a related party.

You should seek advice.

 

[neK]

What are you asking about?

A smsf can borrow money from a related party.

You should seek advice.

I'm not disputing that a SMSF can't borrow money.

Its more about 2 lenders for one property. Paul's reasoning confirms what I was thinking too - the non secured lending would be non arms length (because people could abuse it to get in NCC if they were already above the caps), however if that reasoning is not correct, I am interested in hearing about the alternatives.

 

[Terry_w]

I'm not disputing that a SMSF can't borrow money.

Its more about 2 lenders for one property. Paul's reasoning confirms what I was thinking too - the non secured lending would be non arms length (because people could abuse it to get in NCC if they were already above the caps), however if that reasoning is not correct, I am interested in hearing about the alternatives.

It could be possible. A SMSF can borrow from a related party. A related party can lend at arms length.

But as Paul says it may be difficult to find a commercial lender willing to lend if the borrower is getting funds for the deposit from borrowings.

 

[Marty McDonald]

Excuse my ignorance on this if I'm missing something but how would the commercial lender know or care where the other funds 20% + costs are coming from if they are already inside the SMSF 's bank account? If lent from the members to the fund at commercial rates and terms what's the issue?