On the 9th September, the SA government released their proposed land tax changes for a very rushed period of consultation and feedback from the community. The government released the draft Bill indicating that they have no interest in conflicting views or consultation regarding their new aggregation measures, which have caused so much angst among investors and are at the heart of the changes.
Having read through and analysed the proposed changes, it seems the government has left in a partial grandfathering rule for discretionary trusts owning property the day prior to the day the bill is introduced to the House of Assembly.
So how does this work?
- For each trust holding land, the trustee can nominate a designated beneficiary under section 13A (1) which then means the Commissioner will treat that designated beneficiary as the final land tax assessee.
- The trustee cannot change the designated beneficiary unless the person dies or loses capacity.
- Thus, if that designated beneficiary withdraws, the Trustee has no choice but to withdraw the notice and must then pay trust surcharge rates of Land Tax with a threshold of only $25,000 before the land is assessible, as opposed to the $450,000 proposed threshold available for individuals.
- Land holdings in discretionary trusts cannot be split between multiple designated individuals.
So let’s look at a practical scenario:
- A family with two adult children owns five properties in five trusts, with $300,000 of land value each.
- Each of the children and the husband are assigned as the designated beneficiary of one of the trusts. As all three are under the $450,000 threshold the net land tax payable on those properties will be NIL.
- The wife is the designated beneficiary of the remaining two trusts, meaning she will have $600,000 of total land holdings assessed to her and thus be above the $450,000 threshold and be liable for land tax.
- So in practice, for many families there will be a way to restructure the land holdings to minimise land tax being aggregated for existing properties.
- Keep in mind, these rules don’t allow for further properties as this provision will not apply to land held, or beneficiaries added to a trust after the bill is introduced to the House of Assembly.
- So, for future investments, we would recommend investors look at interstate land holdings which are not currently aggregated between states, or, where possible, holding land through self managed superannuation funds (which are exempted from the new land tax rules) if they want to increase their land holdings.
Other Items of Interest
- Only an adult over the age of 18 years can be a designated beneficiary.
- There does not seem to be any risk to the parent in making a child a designated beneficiary, but as the child gets older and buys his or her own properties, this may cause issues as there is no means of amending a designation once made.
- There is also no concession for divorce or relationship breakdown, so in a family break up there will be additional land tax considerations that will need to be taken into account.
If you want to know more about the proposed land tax changes and how you can structure your property portfolio to minimise your total exposure, Bartley Partners is here to help as Adelaide’s specialist Business and Property accountants.
About the Author
Written by Christopher Overton
Partner at Bartley Partners Accounting
Christopher is a Chartered Tax Adviser and an admitted solicitor in the Supreme Court of South Australia. He is also an experienced property investment adviser working with investors on portfolio planning, property selection and feasibility studies. He is an avid property investor and has completed numerous development projects, both in South Australia and nationwide.