QLD Land Tax

[Paul@PFI]

I had a verbal discussion today with a QLD property investor. He owns three IP's. I raised a land tax issue that isn't commonly understood that is peculiar to QLD. I suggested I would post for his benefit and others. Here you are Tim, here is the info I mentioned.....

Land tax is a state tax levies upon the unimproved value of land. A wealth tax. And it is automatic...Sort of. Landowners should register before approaching thresholds. Once they go over assessments are automatic. Failure to register is a concern as a charge can exist and delay settlement when selling. OSR Qld will do a check for compliance before sale !

If an investor owns property that is not exempt (ie own occupied home) and the aggregate land value exceeds $600,000 the aggregate value is taxed. Here is the issue and the opportunity:
- Lets assume he buys another IP and the aggregate value is now $650,000. Land tax will be payable.

But if another structure had been used, perhaps no land tax would be due.

In QLD a unique issue occurs with trusts. The trustee is assessed on a trust by trust basis. So a taxpayer could have two trusts each holding $400,000 of land. No land tax.

It comes with one catch. Changes in the trust can trigger stamp duty but this problem isnt an extensive issue with good advice.

I'm no longer practicing in this specialist area and would suggest Chris Batten at Macquarie Group Services Sydney - Not part of that bank !! He has some matters on the boil in this issue from recent discussions. Allowing some changes to trusts and some strategies.

Any views of people relating to this specifc QLD issue ??

 

[pinkboy]

$350,000 threshold for Trusts and Companies I think.

pinkboy

 

[Paul@PFI]

Pinko

Pinko - Yes correct.

https://www.osr.qld.gov.au/land-tax/liability-land-tax/owner-type-threshold.shtml explains various thresholds.

Individuals have a threshold $600,000
Trusts have a $350K threshold. This applies per trust which explains the strategy of multiple trusts. OSR link above explains "When calculating land tax, the value of land held by a particular trust will not be added to the value of any other land held by the:
•same trustee for a different trust,
•trustee as an individual or company."....

 

[see_change]

Hi Paul

I was made aware of this fairly quickly after joining the forum in 2001 Hence the reason to buy in different trust in q'land , but depending on land value ,, you don't need to set up a seperate trust for each property as is recommended by some .

It's not a specialised area so any accountant can set up the required trust ( as far as I'm aware ) . Ours did and he's not an " investment orientated accountant "

We had 15 houses there at one time and no land tax

Cliff

 

[D_One]

I think he is referring to "specialised area" as being making sure that your trust deeds permits some changes without triggering resettlement of the trust or stamp duty.

 

[Qlds007]

Must admit Land Tax when you have a number of properties can make a real indent into your rental return.

If it wasn't for the fact that we have been increasing the rents on our portfolio each and ever year since 2000 we would have looked at selling down some of the properties and buying interstate.

Certainly an expense that needs to be considered as a serious investor.

 

[Paul@PFI]

QLD Ltax

??? I'm confused by this. The aggregate land value of the trust would have to be under $350K under present thresholds to have Nil land tax. 15 prop's = avg $23K land value. Doesnt seem right. Maybe under old laws too??

Perhaps you didn't register the trust for land tax? Land tax isn't automatic. Failure to register can be penalised. In that case if you were to sell one the "land tax clearance" required to effect the sale contract might disclose the additional properties and trigger a default assessment. Have seen people with that problem...The OSR generally goes back at least 4 years and applies penalties and interest if they get nasty. Might be worth checking in a discrete way.

Anyone can setup a trust - agree. That comes with concern it wasnt done correctly too when its DIY. Ditto anyone can transfer land titles but lawyers and conveyancers know all traps and mistakes and its when a problem occurs their skills kick in. Problem is if its not setup correctly or a future change is made. Example is adding a beneficiary or even revoking one - For example a parent on age / DVA pension. Common problem that one. Simple trust change might trigger stamp duty.

The seperate property per trust - Agree may be extra $$ but when the problems are considered it might actually be a benefit. For example:
Lets assume a unit trust owns two IP's both cost $100K. Five years later one is worth $200K the other $90K. You sell the dud. CGT loss of $10K right ??? No. The CGT on disposal of trust units for unitholder/s would be $90K taxable !! Not only that in QLD transfer duty may apply as the trust has been changed through issue OR redemption of units!! The change must always ensure that the % for each unitholder remains exactly the same before and after that redemption. So a seperate trust can be quite beneficial for a minor extra cost of $400 ish to avoid that issue.

A Disc Trust wouldnt have that same concern BUT if it owns land with value > $350K land tax kicks in. So seperate trust can avoid this...So instead of one trust with 4 IPs with land of $400K better off with two trusts @ $200K land. No land tax.

"Any accountant can setup" - I dont agree with that view. Most accountants have no idea. Sure, they can order a trust and setup a trust but do they know all common mistakes and strategies?? Probably not. Its like asking your GP to perform major surgery. How I test if my accountant knows enough ?? Here are some Q's to ask:
1. Explain difference between a hybrid unit trust and a unit trust. When is a HUT really useful ?
2. Explain what a unit trust needs to do to be OK for a SMSF investor. What are common deed errors in unit trusts - They should explain the redemption clauses and an absolute right to demand redemption at market value.
3. Ask them to show you a discretionary trust deed and explain the clauses relating to changing the deed or changing trustee
Personally I would use a accountant who knows more about trusts than most lawyers. They will use a deed thay know and trust from a lawyer they rely on. Or should !! Ditto most lawyers shouldnt establish a trust either. If they arent a tax practitioner you may buy buying expensive A4 paper and make a complete mess of structure.

Hi Paul

I was made aware of this fairly quickly after joining the forum in 2001 Hence the reason to buy in different trust in q'land , but depending on land value ,, you don't need to set up a seperate trust for each property as is recommended by some .

It's not a specialised area so any accountant can set up the required trust ( as far as I'm aware ) . Ours did and he's not an " investment orientated accountant "

We had 15 houses there at one time and no land tax

Cliff

 

[RPI]

I often advise clients to buy only property per discretionary trust for this reason. It obviously depends on the value of the underlying properties. I set up one yesterday for 2 properties with a land value of $66k each. Client was comfortable that it was going to be a while until you hit the $350k threshold.

If you hit $350,001.00 you are up for $1,450 in land tax. Having 2 identical trusts holding 2 properties is going to be a lot less extra in accounting fees than having them in the same and paying this amount of land tax.

 

[Darlogus]

Should I TRUST Land tax

I often advise clients to buy only property per discretionary trust for this reason. It obviously depends on the value of the underlying properties. I set up one yesterday for 2 properties with a land value of $66k each. Client was comfortable that it was going to be a while until you hit the $350k threshold.

If you hit $350,001.00 you are up for $1,450 in land tax. Having 2 identical trusts holding 2 properties is going to be a lot less extra in accounting fees than having them in the same and paying this amount of land tax.

RPI, I am also in Brisy and looking for a IP and am over the land tax 600k in my name. The properties I am looking at are over $350k land value. Is a trust still the way to go. I have not used one before, and am thinking of going down this road or smsf? This is what brought me to this forum a couple of days ago.

 

[Aaron_C]

Wouldn't be a bad idea to reset your land tax threshold with a trust. Just don't get carried away. I think Darryl's example of a client using a trust with a land value of $66,000 is frankly quite outrageous...there is no way you will recoup those legal/trust costs.

 

[Terry_w]

How I test if my accountant knows enough ?? Here are some Q's to ask:
1. Explain difference between a hybrid unit trust and a unit trust. When is a HUT really useful ?
2. Explain what a unit trust needs to do to be OK for a SMSF investor. What are common deed errors in unit trusts - They should explain the redemption clauses and an absolute right to demand redemption at market value.
3. Ask them to show you a discretionary trust deed and explain the clauses relating to changing the deed or changing trustee

Paul, isn't all this legal advice?

 

[RPI]

Wouldn't be a bad idea to reset your land tax threshold with a trust. Just don't get carried away. I think Darryl's example of a client using a trust with a land value of $66,000 is frankly quite outrageous...there is no way you will recoup those legal/trust costs.

Aaron I think you must have misunderstood my post.

The client bought 2 properties of $66k land value each in a single trust because the $66,000 per property meant they were not going to hit the $350k anytime soon.

Trying to illustrate that although I usually recommend 1 per trust in QLD, it depends on the land value. Majority of my clients buy in Brisbane and the Land value is already approaching the $350k per property.

 

[Aaron_C]

Aaron I think you must understood my post.

I used it as an example of where someone who was buying in a trust bought 2 properties in the one trust because the $66,000 per property meant they were not going to hit the $350k anytime soon.

Ok, apologies Darryl.

 

[RPI]

Paul, isn't all this legal advice?

Definitely legal advice Terry.

 

[RPI]

RPI, I am also in Brisy and looking for a IP and am over the land tax 600k in my name. The properties I am looking at are over $350k land value. Is a trust still the way to go. I have not used one before, and am thinking of going down this road or smsf? This is what brought me to this forum a couple of days ago.

Try this for working out your calculations.

http://amun.osr.qld.gov.au/sap/osrqld/wd_ltax_calc


Some rough figures on 2 scenarios below
Scenario 1
If you have $650,001 in your own name and buy a $350,001 UCV property
Land Tax payable $4,516.15

Scenario 2
If you have $650,001 in your own name.
Land Tax payable $1,000
Buy a $350,001 property in trust
Land Tax payable $1,450


Scenario 2 saves you $2,066.15 in land tax in the first year alone.

For year 1
Costs around $1,000 to setup a trust and corporate trustee.
Leaves $1066.15 extra in accounting fees than if you held property in own names before you are worse off.

Year 2 on
circa $250 for Asic renewal fee
Leaves $1800 extra in accounting fees than if you held property in own names before you are worse off.

 

[RPI]

Ok, apologies Darryl.

All good Aaron

 

[Darlogus]

Thanks RPI. The figures you gave makes sense and I was thinking that may have been the case. I take it this is the same through a smsf also?

 

[Comet]

Reading this post certainly makes trusts seem financially beneficial. Is there any negatives to holding property in a trust rather than own name ?

 

[jrc77]

Reading this post certainly makes trusts seem financially beneficial. Is there any negatives to holding property in a trust rather than own name ?

Additional setup costs and ongoing accounting costs.
Additional complexity.

Regards,

Jason

 

[Terry_w]

Reading this post certainly makes trusts seem financially beneficial. Is there any negatives to holding property in a trust rather than own name ?

Many.

With a trust you must remember you are not holding a property in a trust structure, but the trustee owns the assets of the trust for the benefit of the beneficiaries as a whole. It is not your property and you should consider that you may control the trust now, but this control is only temporary.

Trusts are also extremely complex