Land Tax on real estate

When buying real estate other than your home, you may have to pay land tax.  Property owners (who are liable) pay land tax to the state government every year.  Before your next purchase, investigate whether you will have to pay land tax on real estate owned by you.  Implementing “Land Tax on real estate” strategies when buying real estate may save you a lot of money – for many years.

The basic rules of land tax can be found at: http://www.qld.gov.au/environment/land/tax/

There may be strategies that you could implement to reduce or eliminate land tax. These strategies may help you get organised & minimise the impact of the tax on your family budget.

Before You Start

1. If you have never received a Land Tax bill from the Office of State Revenue, your first question might be – Do I need to worry about this?
2. If you have never received a Land Tax bill, you are not going to enjoy your first.
3.  What is crucial, as usual, is to obtain some legal advice well before you sign any Contract to purchase.
4. Everyone’s circumstances have to be considered individually – there is no one size fits all approach.

Why Is It important?

1. If the “value” of all the property owned (excluding your home) is higher than the relevant threshold amount, on the 30^th June each year, the property owner must pay land tax.
2. Different thresholds apply depending upon the type of property owner:
   • Individuals usually reside in Australia: $600,000
   • Companies, Trusts, Absentees:               $350,000
3. The “value” is not the market value of the properties, but the Unimproved Capital Value (“UCV”).  The UCV is usually considerably lower than the purchase price, and may be found on government databases, and the local authority rate notice.
4. If you prefer to buy and hold assets for the long-term, keep in mind that property values have grown substantially over time.  Thus, even if you may not be likely to pay land tax in the near future, there may come a time when the property value increases significantly – and tax is payable very year!

Strategy # 1

1. Recently, a client presented with a draft Contract for the purchase of a modest house as a rental property.
2. The client was a Family Trust, and enquiries confirmed that this Trust owned another investment property.
3. We verified the UCV for both properties and assessed the land tax liability at the end of this financial year would be in excess of $4,600.
4. The solution was to create a new Family Trust with a different Trustee, and for the property to be purchased by this new trust.
5. The result is that there was no land tax payable by either property owner for either property.
6. After deducting the one-off set-up costs, the saving in the first year was in excess of $2,500, and the annual $4,600 saving will increase as the UCV increases.

Strategy # 2

1. When buying a property where the “value” is above the threshold amount, or the value is likely to increase above the threshold whilst you are the owner, you should consider buying the property in multiple names.
2. This can be done in various ways including creating new Trusts to jointly buy the property, with each trust owning a part-share.
3. The land tax is assessed on the value of each share owned, and therefore the value is divided amongst the joint owners.
4. Regardless of the strategy used, the government may in the future change the criteria, thresholds or tax rates to increase the impact of the tax.

Disclaimer: The above is to be considered as general education. This is not advice and it is not to be acted upon without advice from a qualified professional who understands your personal circumstances.