Michelle Bromley CFP®, Director & Private Client Adviser – Strategy and Advice
“Let me tell you how it will be
There's one for you, nineteen for me
'Cause I'm the taxman
Yeah, I'm the taxman”
George Harrison, The Beatles
George Harrison’s 1966 lament on the British Government’s progressive tax system no doubt strikes a chord with Australian property investors, the majority of whom are small-scale investors buying bricks-and-mortar as a means to increase their wealth and generate ongoing income, as along with potential for returns comes the responsibility of managing the various taxes associated with property ownership: income tax on rents, capital gains tax and land tax.
Currently, Property owners in Victoria are experiencing a notable rise in their land tax bills, with many individuals receiving land tax assessments for the first time.
This uptick is attributed to the Victorian Government's decision to elevate land tax rates while concurrently lowering the general land value threshold to claw back some of the Budget deficit incurred due to Covid-related spending.
As of 1 January 2024, the Victorian tax-free threshold has been reduced significantly from $300,000 to a mere $50,000. Concurrently, rates have also increased, with the maximum rate applicable to high-value properties now being 2.65%, up from 2.55% the previous year.
Consequently, the Land Tax assessment for a median suburb, a block valued at $750,000 has almost doubled from $1,725 in 2023 to $3,150 in 2024.
In this article, we look at some strategies to minimise the impact of land tax.
Understanding Land Tax
Before we delve into considerations around land tax minimisation, we need to understand what Land Tax is and how it is calculated.
Land tax is an annual tax levied on the unimproved value of land as determined by the Valuer General, which exceeds a certain value threshold. It is generally calculated on the aggregate value of taxable land owned, not on each individual property.
Each State and Territory has its own land tax regime, with varying thresholds, tax rates, and exemptions. Researching the specific rules in your jurisdiction is the first step.
Different rates and thresholds may also apply depending on whether the land is owned by an individual, trust, or corporation.
Strategic Tax Minimisation
Now, let’s look at a few strategies that could help property investors minimise their land tax liability.
Buy a property interstate: Don’t put all of your eggs in one basket! You may find property is more reasonably priced and lower-taxed out of state. The tax-free value threshold in Victoria is a mere $50,000; however, in sunny Queensland, they’re a little more laid back with a tax-free valuation threshold of $600,000. For the ultimate land-tax-free haven, investors in the Northern Territory don’t pay a cent in land tax.
Buy an apartment in a multi-unit development: Purchasing an apartment within a multi-unit development offers a strategic advantage in managing land tax. The ownership title for the land beneath such developments is divided among individual apartment owners. Consequently, each owner is liable to pay land tax based on their respective share of the land's value, rather than being responsible for the tax on the entirety of the site's value.
Consider ownership structures: How you structure your property ownership can impact your overall land tax liability. As Land Tax is paid by the property owner, buying property jointly or in your partner's name where they have not fully utilised their tax-free land tax threshold can reduce your land tax liability. However, the cost to establish and administer a Trust could be greater than any land tax saving, and care must be taken to consider property owned within Trusts (including self-managed super funds) that you control, as property values may be attributed to the Trust controller in certain circumstances.
Land Tax Exemptions and Concessions: The State Revenue Office is notified at property acquisition of its intended use as your principal residence, which exempts that property from Land Tax. The exemption is also available for property held via a Trust or property used as the principal residence of a disabled immediate family member of the owner.
There are a number of other exemptions and concessions in Victoria, including an exemption for primary production land and a 50%concession for build-to-rent developments. You will need to check the exemptions and concessions in the state where you are purchasing property.
Correct Property Valuations: Land tax is typically calculated based on the unimproved value of the land as assessed by the Valuer General. While you can't control market valuations entirely, you can challenge valuations you believe are inaccurate. Engage a qualified valuer to assess the value of your properties and provide evidence to support your challenge if necessary.
In Conclusion
In the world of property investment, staying ahead of the tax game is crucial. As the land tax landscape shifts, proactive planning becomes paramount. Once you've acquired a property, your options for tax optimisation may be limited. Therefore, careful pre-planning is essential to ensure you are making the most tax-efficient decisions from the outset. Consulting with tax professionals and staying proactive in your tax planning efforts are key to achieving optimal outcomes in navigating the complexities of land tax.
Contact one of our Wealth Advisers for a tailored financial solution, utilising our strategic knowledge and investment acumen to help your family realise your long-term generational wealth aspirations.
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