# NSW Land Tax deduction to prevent double taxation

#### tess85

There is a really interesting fact sheet here which might be of interest to NSW investors.

http://www.osr.nsw.gov.au/sites/default/files/file_manager/ofs_lt06_1.pdf

To summarise (directly from page 2)

If A & B jointly own Property 1 with a land value of \$800k, and Mr A wholly owns Property 2 with a land value of \$100k, then land tax payable is:

\$301.60 by Mr A
\$0 by Mr B

Here is the interesting bit (not in the factsheet but this is what I think)... if A & B decided to buy Property 2 in a 99:1 split in favour of A, then by my reckoning A can't get the land tax deduction to prevent double taxation anymore.

Which means A owns \$499k worth of property
and B owns \$401k worth of property

So A pays land tax of \$1492 pa
and B pays land tax of \$0 still.

Which means that by buying in a 99:1 structure instead of 100:0 in favour of A, they had to pay almost \$1200 pa more in land tax.

I am just discovering this now, having had set up all my IPs as 99:1 tenants in common... a setup less than optimal now that I am running into land tax considerations.

Would be interested to hear people's thoughts?

You've miscalculated in the first instance.
\$400k+\$100k-\$412k (threshold) = \$88k x 1.6% = \$1408 payable by A

Case b) \$400+\$99 = \$499k x 1.6% = \$1392 payable by A

A saving of \$16

If however they purchase both in 50/50 shares then each would pay \$38k x 1.6% = \$608 each or \$1216 total.

Assume this is NSW, I thought if the 800k land is under 2 joint names A & B, then the threshold for A & B is 412K (not A has 412k threshold and B has 412k threshold) and you can simply half the 800K, hence 800k-412k=388k x1.6%= \$6160 that is payable by A & B.

In the Land Tax 2014, one note says:
Where land is owned in partnership, one threshold applies regardless of the number of owners. That is, where land is owned in partnership, the threshold would still be \$412,000

I assume in this case joint names and partnership is referring to the same thing

You've miscalculated in the first instance.
\$400k+\$100k-\$412k (threshold) = \$88k x 1.6% = \$1408 payable by A

Case b) \$400+\$99 = \$499k x 1.6% = \$1392 payable by A

A saving of \$16

Do you mean the figure of \$308 that I quoted, that you say should be \$1408? The \$308 comes straight from the OSR's working (link above). They do a deduction to arrive at that figure. I have replicated the OSR calculation but I'm surprised it gives a favourable result to the investor, that's all...

@RetireRich101, thanks! I think I will call up the OSR to get a better idea of the matter...

The joint owners are assessed as if they were one person an get the threshold - primary tax payer. If they have other properties they are asessed separately including their % share of the joint property but get a credit as the secondary tax payyer so they are not taxed twice.

I spoke with OSR today.

Taken my Assessed Land Value by OSR

(1) Combined land value for Mr/Mrs RR (assuming 50/50 ownership) under Client ID "A" is \$600,000

(2) Mr RR also have 1 land owned \$100,000 under Client ID "B"

Assessment:

Given a scenario of my situation, the OSR lady confirmed that:

Amount due in (1) for Mr/Mrs RR is \$600,000 - \$415,000 = \$185,000
(\$185,000 * 1.6%) + \$100 = \$3,060.00
ie, amount land tax due for Mr/Mrs RR is \$3,060.00 for Client ID "A"

Amount due in (2) for Mr RR is (50% * \$600,000) +\$100,000 =\$400,000
Because is below \$415,000 threshold, Mr RR will incur no land tax under Client ID "B"

Any PPoR under the OSR assessment should be marked as exempt.

Can someone confirm my understanding of the OSR lady's assessment is correct?

Of course there is a way to double dip thresholds....

1. Diverse property not all in NSW.
2. SMSF gets a separate t'hold.
3. Company ownership of units in a UT. Co gets a separate t'hold BUT remember no CGT benefits. A company can be an ideal short term unit trust investor in some cases.
4. QLD taxes each Trust separately...Structure advice is needed.

But the best way to approach NSW land tax is by thinking this way:

EACH landowner has a personal threshold. Each parcel of land is apportioned if its joint or TIC and that portion reduces the relevant investor threshold. When the t'hold goes negative then land tax commences...

A fixed trust has a threshold too...The trust is assessed AS WELL AS THE UNITHOLDER IN SAME % AS UNITS. If the Trustee exceeds threshold the trust pay LT. The unitholder is ALSO assessed on their %. If they are under threshold nothing happens. If the individual exceeds t'hold then the person gets a assessment. They will be credited for the share of trustee tax already paid.. Hence no double duty. But it is possible for a trust to own a small amount of property and that adds to the individual assessment.

If a Disc Trust owns land in NSW EVERY dollar of land is assessed incl any share of land in a unit trust it holds units in. (Credit given IF the UT has paid land tax).

Problem trusts in NSW
- Most unit trusts except if they are a "fixed unit trust"
- Disc Trusts
- Hybrid Trusts
But then if the beneficial owner has already maxed out thresholds this issue may not worry many.

I spoke with OSR today.

Taken my Assessed Land Value by OSR

(1) Combined land value for Mr/Mrs RR (assuming 50/50 ownership) under Client ID "A" is \$600,000

(2) Mr RR also have 1 land owned \$100,000 under Client ID "B"

Assessment:

Given a scenario of my situation, the OSR lady confirmed that:

Amount due in (1) for Mr/Mrs RR is \$600,000 - \$415,000 = \$185,000
(\$185,000 * 1.6%) + \$100 = \$3,060.00
ie, amount land tax due for Mr/Mrs RR is \$3,060.00 for Client ID "A"

Amount due in (2) for Mr RR is (50% * \$600,000) +\$100,000 =\$400,000
Because is below \$415,000 threshold, Mr RR will incur no land tax under Client ID "B"

Any PPoR under the OSR assessment should be marked as exempt.

Can someone confirm my understanding of the OSR lady's assessment is correct?

Yes. INDIVIDUAL share of all assessable land is what is assessed. Land tax is a personal tax. SOMETIMES other assessments get issued but it always counts to the individual at the end. This is the secondary assessment system. Secondary assts get issued only if primary assessment of the entity is taxable and also the individual is assessable.

Land tax is a simple complicated tax.

With Mr & Mrs on title, does a 99:1 split only affects land tax, and for tax returns, it is always even 50:50 split?

With Mr & Mrs on title, does a 99:1 split only affects land tax, and for tax returns, it is always even 50:50 split?

No, it affects land tax and for income tax you will be taxed on % ownership

No, it affects land tax and for income tax you will be taxed on % ownership

Why do people do 99:1 title? What's the benefit compare to a 50:50?

Why do people do 99:1 title? What's the benefit compare to a 50:50?

Asset protection (for the person with 1%)

Asset protection (for the person with 1%)

I think it is more for the tax reasons.

I think it is more for the tax reasons.

Can you please explain how it could work?

Can you please explain how it could work?

99% owner claims 99% of the bills - but also gets 99% of the income.

Not a good idea generally - my opinion.

Just sharing my experience which has seemed to work OK so far:
My marginal tax rate is 32.5%, my husband's is 37%.

I own 99% of our CF+ IPs, husband has a 1% share via tenants in common.

When we come to sell the IPs I would be more likely to be on a lower income than my husband due to working part-time or maternity leave etc.

I'm curious to know why Terry thinks 99:1 splits are not a good idea generally?

I'm curious to know why Terry thinks 99:1 splits are not a good idea generally?

Mainly from an asset protection point of view and servicing:

1. If the loan is unable to be paid both parties are fully liable.
2. If both names on the loan then this eats into serviceability as a result of 1

owning 1% of a \$500,000 property means your share is only worth \$5,000 yet you are taking on the risk and loan of a \$500,000 share.

And one advantage is asset protection - for the 1% holder. This prevents the other spouse from:
1. selling
2. mortgaging

the property with out the consent of the 1% holder. But this could also be achieved by a caveat.

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