Tax Tip 30: How to Minimise land tax in NSW

Land tax in NSW is a large cost to many investors at 1.6% of land value per year. But careful planning allows the pain to be minimised - to a certain extent anyway.

Individual Ownership structure
Each individual receives a threshold of $432,000 (as of 2015) in NSW. This threshold excludes the main residence (ie the main residence doesn’t count).

Spouse A may be able to own 2 cheaper investment properties before reaching this level
Spouse B may also be able to own 2 cheaper investment properties before reaching this level.

But properties purchased jointly will mean there is only one threshold between both persons so the couple may only be able to get 2 properties before hitting the threshold


Absences
The absence from PPOR rules for land tax are much be strict and complex than that for CGT. If you are absent from your PPOR and had previously lived in the property you may still be able to claim it as the PPOR and not pay land tax. Strict rules apply such as not leasing the property for more than 6 months and also moving back into the property after the absence.


Using a SMSF
In NSW a SMSF gets a separate threshold to an individual members of the fund. The Custodian trustee is a bare trust and the SMSF is considered the owner so the Custodian Trustee will also be entitled to a separate threshold to the individual members (but not an additional threshold to the SMSF).

Where spouse A and B are involved in one SMSF the SMSF will get one threshold. However Spouse B could rollover his benefits to a new SMSF which could then get its own threshold.


Company Ownership
A company is a legal person and will get its own land tax threshold of $432,000. However it is not as simple as setting up new companies all the time to own new properties as there are laws which allow the aggregation of different companies which are controlled by the same person or persons. However it may be possible for spouse A to control company A and spouse B to control company B and for two companies controlled by the same family to get a separate land tax threshold. seek legal advice!!


Timing
When purchasing property if you settle before 01 Jan you will be liable for land tax for the full year ahead. However if you were to settle 02 Jan the vendor would have been liable for the full year ahead - they may attempt to make the purchaser pay this through terms of the contract of sale but this is open for negotiation.

If you are about to rent your property and it is Dec consider waiting until new year. Although there is a rule that it has to be continuously occupied since July 1 for this to apply - or the Commission is satisfied that it is the main residence.


Fixed Unit Trusts
With fixed unit trusts the unit holder is assessed for land tax as if they were the title holds themselves. This doesn't really give any extra threshold but can provide flexibility while still getting the threshold.


Carefully Drafted wills
When leaving a main residence to a trustee of a discretionary testamentary trust in a will make sure there is a life interest given to the surviving spouse as he or she can then get the main residence land tax exemption while living in the property - despite discretionary trusts not normally benefiting by getting a threshold.

 

Exactly the topic i need to know.

So a couple would have 3 thresholds? One each and one combine?

Thanks Terry

 

No. Just one each but not combined.

 

Yet another thing I need to factor into a future spousal sale strategy.... we are right at the threshold (everything purchased jointly)

thx Terry

 

I need a new lawyer like you Terry so I too can have spouse A and spouse B.

Keep up the good work.

 

Great information! I called SA land tax office yesterday, they told me here we have 3 thresholds - one each and one combined. Anyone can confirm this?

 

Sort of. That's a very simplistic view. The joint threshold gets split so that the shares of joint property count towards the individual t/hold.

 

I might be up for land tax in this case... we are right at the threshold with jointly-owned IPs, however I own more than 50% of one of them... do I add up my shares of land values and assess it against half of the NSW threshold ($432k / 2 = $216k)?

 

Great info and tips terry!

 

No, you are both consider one person for the joint ownership.

For any properties you own on your own only your % ownership share of the jointly owned properties will count.

 

What's the going rate for a used spouse? I never thought that I required a strategy for a spousal sale.

 

I'm hoping Terry can advise on the specifics when the time comes

 

Hi Terry

If one moves overseas and becomes a non resident for tax purposes, do they have to pay land tax on their (former) ppor if that is still their only one?

thanks

 

depends on the State where the land is located and the value of the land.

 

NSW, and above the threshold?

 

Clause 8 of the PPOR exemption has a very limited concession for NSW.

http://www.osr.nsw.gov.au/info/legislation/rulings/land/lt082v3

Its worth considering if you really are non-resident for income tax purposes too. Do you have a migration purpose for departing Australia. Moving to USA on a temp Visa isnt enough. If not you may well still be a tax resident and would also keep CGT concessions etc.

 

Is there any reasoning behind not giving two thresholds ?

Is this consistent across all states (pretty sure Qld gives two thresholds) ?

We are paying a lot of NSW land tax - partly because of this.

 

That is the law - reasoning is to raise more revenue.

Other states are very different.

 

Have a look at the legislation, cl 8
http://www.austlii.edu.au/au/legis/nsw/consol_act/ltma1956173/sch1a.html

The OSR's position is that renting the property out for more than 6 months will mean the exemption is lost if income is earned. I don't necessarily think they are correct because of cl 7(a) - if you have leases less than 182 days you may be able to get the exemption for 6 years and earn income.