South Australia’s regime for Land Tax has now changed, with new rates and new methods of calculation taking effect from 1 July 2020. However, there are also a number of matters which property owners need to consider before the new regime commences to make sure that they are not paying more tax than necessary.
The main change to the way that land tax is calculated is that the property ownership on behalf of each person will now be aggregated. For example, if you had a 50% interest in a property with your partner, another 50% interest in a property with your son, and another 50% interest in property with your daughter, then each of those properties would under the current system attract “single holding” status and the land tax for each property would be calculated as if it was the only asset you own.
Under the existing system this would also apply if you had land owned in companies, trusts or other structures.
Under the new system, almost all of these interests will be aggregated. Therefore in the example where you own a half of an individual property with three different family members, your half interest in all three properties would be aggregated and your land tax would be calculated based on the total value of your personal holdings.
The change to the method of calculating land tax system also corresponds with the reduction in the tax rates. The top rate of 3.7% will be dropped to 2.4%. The threshold when tax begins to apply and the top rate begins to apply, is also increasing.
The current exclusions from land tax, relating to primary production land or the residence in which you live, will continue.
It is critical, where you have interests in land either directly, through a company or a trust, that you become aware of what your land tax liability will be in the new financial year and what, if anything, you can do to ensure your liability is the lowest amount it should be. For some people, you may be able to take advantage of the stamp duty exemptions for commercial land and potentially transfer assets which are held in a particular name if there is an opportunity to move it into different ownership. This would of course need not only specialist legal advice but specialist accounting advice to deal with capital gains, tax and other issues. If changes are to be made, they need to be made before the end of the financial year as land tax is assessed based on the holdings that exist as at 1 July in each financial year.
There are a number of concessions which you would need to consider before 1 July, if you want to use them in the 2020 financial year. Examples of these are as follows:-
- Availability of the land tax transition fund, which is providing a sliding scale for relief in terms of land tax for the first three years of the new system for certain taxpayers.
- For property developers, the ability to de-group allotments within a land developments of more than 10 residential allotments. This requires application in advance and can continue for up to 5 years or longer in certain circumstances.
- Concessions for land being developed into affordable housing, by application for ex-gratia land tax.
- Disclosure of ownership within trusts.
Where land is owned in a family trust, the new legislation allows you to notify the Commissioner of a designated beneficiary, who would then have the tax assessed to them. This can have an advantage in certain situations but it is not for everyone. Once a declaration of a designated beneficiary is made, it cannot be charged to another beneficiary during their lifetime. Again whether this will suit your particular circumstances is a matter for proper and detailed discussion with your lawyer and accountant.
Trusts are dealt with in various ways under the new legislation. Various trusts are excluded from the common ownership provisions, such as charitable trusts and superannuation trusts. There are also special rules for fixed trusts. There is a also a default rate than can be applied to trusts where a declaration of an ultimate beneficiary is not made. The rate paid by a trust has a lower threshold, where tax begins to apply at $25,000 instead of at $450,000. However, depending on your personal situation, the trust rate may still be lower in certain cases overall.
There are also special rules for corporations. Corporations can be grouped and can be liable to be assessed as a single entity. Grouping rules apply and will lead to corporations being grouped if they have the same controlling persons or where one company is able to cast 50% or more of the votes in the second company, or owns half or more of the shares.
It is also important to know that the legislation puts an obligation on you as the land owner to tell the Commissioner that you have been incorrectly assessed where an exemption or partial exemption is applied, or (for example) a trust holding is not advised or otherwise known to the Commissioner. This will occur frequently in the initial years of the new system as the Commissioner will in many cases not have any way to know when land is held on trust or who the beneficiaries of that land would be without advice from the land owner.
Johnston Withers Lawyers: Experience You Can Trust
Johnston Withers have a number of lawyers who have studied the new land tax provisions and can advise you on your particular circumstances. Where you would like us to look at your circumstances, we would need to be provided with copies of your current land tax assessments as to the site values of each of your properties, and be provided with details of any trusts or corporations in which you are involved. If you seek advice from us we will seek to estimate the likely changes in land tax from your position if you make no further changes to your holdings, or, with the assistance of your accountant where appropriate, suggest options that you may want to consider moving forward. We can also advise you on applications for concessions or other exemptions where applicable.