Last week the South Australian state government passed the much amended land tax bill. Since announcing the land tax reform in June’s budget, Treasurer Rob Lucas has worked with a number of political factions and special interest bodies through what has been a very public consultation period.
With the passing of this legislation, South Australia has moved from the state with the highest land tax marginal rate to presumably a state with a more competitive investing and business environment. But, as always the devil will be in the detail …
What are the changes?
Land tax rate changes come into effect 1st July 2020 and include a $25m compensation scheme for eligible individual taxpayers and company groups with possible relief up to:
- $50,000 in 2020-21;
- $30,000 in 2021-22; and
- $15,000 in 2022-23 for any increased land tax payable.
One of the key changes has been the reduction of the top marginal rate of land tax from 3.7% to 2.4% for land valued over $1.1m.
Below are the land tax rates as legislated effective 1 July 2020:
For 2022-23 the threshold for the top 2.4% tax rate will be increased to $2m and the $1.25 rate will be reduced to $1.00. For example, a property with a land value of $2m in 2020-21 will have land tax of $26,452.50 assessed, whereas the same property with the same valuation in 2022-23 will be subject to $22,995 of land tax, assuming the thresholds stay the same. Under current rates for 2019-20, the same parcel of land would have a land tax assessment of $39,070. These are significant reductions over time.
Aggregation of properties
Most of the pain in these land tax changes appears to be for the ‘Mum and Dad’ investor with 2 or more investments through various entities. Ownership will be aggregated at the individual or company level with a surcharge in place for property held in trusts where there is no nominated individual.
For example; if ‘Mum and Dad’ own a property together with a land tax value of $500,000 plus a property each in their own names with the same land tax value for each, the land tax bill will be 3 assessments of $545 each, a total of $1,635. Under the aggregation concept the land tax bill will be $1,500 for both Mum and Dad, a total of $3,000 - a significant increase.
Property owned in trusts
Trusts that own property can elect a nominated individual, but then the trust property will be aggregated with other property of the individual, either owned in their own name or allocated to them through other structures which can result in significantly higher land tax. The alternative is to pay land tax at trust rates which may result in a better outcome. The trust rates effective 1 July 2020 will be as follows:
For example, a $2m property held in a trust would result in a land tax assessment of $32,825.50 under these trust rates. While this is substantially more than land tax assessed at standard rates ($26,452.50), if this property was aggregated with other properties under the nominated beneficiary principal then the land tax aggregation rules could result in a much higher assessment.
Our recommendation
Given the significance of the changes and the potential impact on property ownership groups we encourage you to review your particular financial circumstances moving forward. Our highly skilled team is able to assist and we encourage you to contact your Moore Stephens Australia advisor.