Land Tax - A Tax You Can Plan To Avoid!

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Expert Advice by Paul Wilson
08/08/2012

Land Tax - A Tax You Can Plan To Avoid!

Please take steps to become familiar with the various land tax thresholds between each of the states, and the necessary steps you can take to help minimize your land tax obligations.  It’s much better to become knowledgeable this way, than after the fact upon the arrival of a large unexpected bill.

Initially, with the first one or two properties this may not seem to be much of a problem, but as properties are accumulated land tax can become a prohibitive amount to pay each year.

So how can you minimize your land tax payments?

All states and territory governments in Australia (except the Northern Territory) impose a land tax.  In the Northern Territory there is no land tax at all.

Land tax is based on the accumulative value of all unimproved land that you own, other than your principal place of residence in any particular state. 

Keeping in mind that land tax is precisely that – a tax on the land value, some investors prefer to purchase units with comparatively little ‘land value’ which helps decrease their land tax payments.

Each state or territory government not only has its own tax rate but also has certain exceptions within their laws in regard land tax, so it’s important that if buying interstate that the land tax laws for that state are understood. (See Appendices for links to Land Tax Rates and Thresholds for the various states. Some have inbuilt calculators to work with.)

Land Values

Over the past 10 years we’ve seen vast increases in property values and this has made the payment of taxes a headache for some property investors.  One benefit, if you could put it that way, is that in recent years property values have seen minimal growth overall and in some areas they have declined.  Therefore land taxes haven’t increased significantly unless there has been a change in the land tax rate.

How to Minimize Land Tax

There are essentially three steps that can be taken to minimize land tax. You will need to evaluate your own circumstances and assets to decide if any of these steps would be of benefit to you.

Let’s take the example of four houses with land values at:  $100,000, $150,000, $180,000 and $250,000 (a total land value of $680,000) and look at the various scenarios.

  1. Invest in property in several states

  1. If all four properties were owned in the one state, let’s say NSW, the land tax would be $4,644 allowing for a land tax threshold of $396,000 for the 2012 land tax year. This calculation was made on the NSW Government website.
  2. If all four properties were spread over 4 states then there would be no land tax to pay due to the fact that in each state the property value is below the land tax threshold of each state.
  3. If they were all situated in the Northern Territory there would be no land tax to pay.

 

  1. Buy units instead of houses

A unit has a much lower land value than a house due to the relative size and value of land to the overall value.  A land tax saving can possibly be made, however there are other expenses you also need to weigh up.

What you need to calculate in this scenario is the cost of the body corporate. If the body corporate fees are higher than the land tax it may not be worth buying the unit as the overall cost of owning the unit (body corporate + land tax) have a too larger impact on the performance of your investment.

This of course leads into a much deeper discussion on the fundamentals of assessing the viability of any property.  For now though, we are only highlighting that some body corporate fees are so excessive that they are a greater influence when crunching the numbers on the viability of a property than the land tax will ever be.

  1. Buy properties using different buying entities

The third option is to buy the four properties in different entities. Looking at this option, say Jack and Helen Scott had four properties. If Jack owned one, Helen owned one, they owned one jointly and the fourth was owned under a trust then again, there would be no land tax as there are four different entities owning the properties. Although this may seem to be ideal, owning only one property in a trust can be expensive too as there are set up costs and expenses related to the annual report of trust activity however that’s a whole other discussion that I’ll leave for another time also.

Finally, after assessing these different methods of minimizing land tax, you also need to incorporate your overall income and taxation position.   Obviously it’s very important, therefore, that you have a detailed discussion with your experienced property tax accountant, to ensure everything you do is specific to your own individual circumstances.

APPENDICES

Land Tax Rates and Thresholds (click on the links)

NSW   VIC   QLD  

WA    TAS   ACT 

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Paul Wilson is an Independent Property Investing Expert and the founder of We Find Houses, Educating Property Investors & We Find Finance. Paul has been educating and coaching investors since 2001. Paul provides valuable, independent guidance and support by teaching strategies on how you can invest successfully while protecting yourself from commission hungry sales agents and property spruikers. Protect yourself with knowledge, contact Paul today for a complimentary consultation on 1800 600 890 or email paul@wefindhouses.com.au

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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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Comments
  • simmon hisco says on 29/05/2013 05:54:18 PM

    Keeping in mind that land tax is precisely that – a tax on the land value, some investors prefer to purchase units with comparatively little ‘land value’ which helps decrease their land tax payments.

  • Jack says on 19/08/2013 10:37:46 AM

    Nice article but I don't follow the 3rd option, "Buy properties using different buying entities" how does this mitigate the land tax, I don't see any concession in the legislation due to different buying entities, Joint owners are assessed as single owners, trustee as sole owners and special trusts are "worse off". The owners would also have to "occupy" the land to claim principle place of residence and this aint going to happen across 4 properties

  • chris says on 13/09/2013 11:12:14 AM

    i agree with jack - the 3rd option mentioned above is incorrect.

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