Land Tax is a state impost and different states have different rules and thresholds. For every property investor, it represents a significant cost to owning an investment property. But there are smart things you could do to legally minimise land tax (in conjunction with personalised strategic tax planning advice from a specialist accountant).
I am not propagating that you should not pay the respective Land Tax for your property, because as a longer-term investment the Capital Gains should outstrip the costs of holding this investment – including the Land Tax. You should, however, always consider the impact of Land Tax when acquiring your next investment property.
Here are five tips on how you can minimise your Land Tax
1. Purchase the property in the name of the person that may not already have used the respective threshold in a state.
For example, if the Husband already has a property in his name (excluding your Principal Place of Residence / PPOR) and has used up the threshold in that state, consider acquiring in the wife’s name to absorb a new threshold. However be mindful of the tax implications if the property is negatively geared (please seek tax advice), not to mention any asset protection and estate planning risks and tax triggers associated with holding an investment in an individual name and passing it on to the next generation (again, do seek specialist advice).
2. Purchase an Apartment that has lower land values that’s below the respective threshold for your state.
Apartments generally have a lower land component than houses, therefore, you should check the land component of the investment to determine whether you have reached the respective thresholds. You could own a number of apartments before hitting the thresholds in some states.
3. Use a separate Entity like a Fixed Trust or company that entitles you to a separate threshold on each property.
Some entities in various states are entitled to a separate threshold in their own right allowing you to have multiple thresholds. However, before acquiring the investment in these structures seek independent tax advice as tax treatment could be different than acquiring in your own name and each state has different rules for entities. There may also be other tax implications and inflexibility regarding the use of these structures.
4. Consider the timing of sales and purchase on land and the Date of Assessment for Land Tax in a particular state.
For example, if you are selling a property, ensure that you settle prior to the Land Tax assessment anniversary. If you are selling property just be mindful that you may still be obliged to pay the Land Tax for the following year if you have not settled before this date. For instance, Land Tax in NSW has a peculiar anniversary date of 31st December – many clients are caught out when selling over this period by signing contracts but not settling until January and find that they have a Land Tax bill to pay even though the property has been sold.
5. ‘Don’t put your eggs in one basket’ – invest in property in several states.
If all properties were owned in the one state, let’s say NSW, you would normally exceed the Land Tax threshold. If however, you spread your investment properties over a number of states then there would be less Land Tax to pay due to the fact that you have spread the land values over a number of thresholds.
Needless to say, the first priority is to ensure that the Investment Property is the right one and ticks all the boxes. Land Tax is not the main consideration when buying your investment property but it is one potentially significant impost to holding your property long term and you need to have a Land Tax strategy if acquiring multiple properties. Always seek advice from a specialist property tax accountant who understands the complexity of Land Tax in different states.
David is the Co-founder of Chan & Naylor National Accounting Group. He is a Non Executive Director of Chan and Naylor Australia and provides strategic advice and overall direction to the Group and Senior Management.