How to avoid forking out on Land Tax

The proposed reform continues to attract significant attention from all mainstream news outlets and platforms in SA reaffirming that there is a deep level of community and business angst, agitation and anxiety. Hopefully the ill-conceived legislation is still withdrawn or defeated however, the article below examines how mum and dad investors should handle the reforms should they become law.

Having read through and analysed the proposed changes it seems the government has left in a partial grandfathering option for discretionary trusts owning property the day prior to the day the bill was introduced to the House of Assembly being Wednesday 16th October.

 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 accessible 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 is 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 structure 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 aggregation 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 an adult 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 except in circumstances of death, disability or divorce.

You can download the complete Draft Bill here.

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.

Simply Get in Touch online or give us a call on (08) 8338 1033.