What you need to know about land tax
Land tax can be a significant cost of owning a property. However, there are ways to mitigate the amount of tax you pay each year, so that you yield a higher return on your investment.
But things have changed recently, with new legislation impacting owners, particularly those with large portfolios.
In this article, we take a look at land tax, the increase in the tax-free threshold and what you need to know if you own a property in a trust.
What is land tax?
The amount of land tax you pay is based on the value of the land-only component of your property.
It is similar to income tax in that it has a tax-free threshold and then has brackets where owners pay a greater amount as the total value increases.
Rates, thresholds and rules vary between the states and territories of Australia. Visit your local state revenue office website to find out the details that apply to you. For the purposes of this article, we will be looking at rules that affect ownership in South Australia.
Increase in threshold
As of 1 July, 2020, the tax-free threshold has increased to $450,000, which is good news for people who own 1-2 properties, as this will generally reduce the amount of tax they pay. However, the percentage brackets above the threshold have also increased, which means that it will be more expensive for people who have a sizeable portfolio.
Properties in a trust
Previously, there existed a loophole where people could own properties both in their name and in a trust and claim the tax-free threshold for both of them to reduce their overall land tax bill. A bit sneaky, isn’t it? The government thought so too, which is why they implemented a $25,000 tax-free value threshold to prevent this from happening. The downturn of this change is it makes land tax more expensive for people with multiple properties.
The South Australian Government have helped to negate this rise in costs by allowing people who own a property in a trust to nominate a beneficiary as an owner of the property who will be charged land tax at their personal rates. The tax they pay will be determined on which tax bracket they fall under. This could be advantageous to people if someone in your trust has a relatively small portfolio – theoretically, they will pay less land tax for that property.
To determine whether this is something you should do, speak to your accountant who will be able to advise you on your individual circumstances
The deadline for this nomination is July 31, so if it’s something you wish to pursue, we recommend getting on to it as soon as possible.