South Australian Land Tax Alert – Are you ready for a big increase?

 In Commercial & Property, Conveyancing

Proposed South Australian Land Tax changes could mean your Land Tax bill increases by over 2,500%

On 18 June 2019, the South Australian Government handed down the 2019-2020 State Budget which announced significant amendments to the Land Tax Act 1936 (SA). These proposed amendments will introduce new land tax aggregation provisions that will apply from 30 June 2020.

These changes are expected to increase some land tax bills by over 2,500%.

Presently, in South Australia land tax is calculated on the basis of legal ownership of land. This has made it commonplace for individuals to create separate entities with different ownership structures which allows for land tax to be calculated on the basis of a “single holding”. Separate legal holding entities commonly include family trusts, company trustees, different companies with common directors, super fund holding trusts and other more complex trust structures.

The new aggregation provisions will “look through” these separate legal structures to identify the ultimate individual owner(s) of the land to be taxed as one entity. This will involve:

  • aggregation based on an owner’s interest in every piece of land, rather than only aggregating properties held in the same ownership structure; and
  • the grouping of two or more related companies for the purposes of identifying land tax.

Under the proposed changes, land tax will be calculated on the total site value of all property that is deemed to be common in ownership, even if those individuals hold the properties across a number of legal holding entities.

Currently, the total property site values are not grouped together even when some common individuals are benefitting.

Let’s look at the following example for individuals who currently own properties with just over $2 million dollars in site value spread over 5 properties held in different holding entities.

2019/2020 – Current SA Land Tax Calculation:

Property Holding Entity Site Value Single Holding Land Tax
1 Company 1 $390,000.00 $0
2 Company 2 $550,000.00 $795.00
3 Family Trust 1 $475,000.00 $420.00
4 Family Trust 2 $390,000.00 $0
5 Super Fund Trustee $520,000.00 $645.00
TOTAL: $2,325,000.00 $1,860.00

Based on this example, investors who were able to show that each of the separate holding entities should pay duty individually would currently have a land tax bill of $1,860.00.

2020/2021 – Proposed SA Land Tax Calculation (based on the current rate of tax and thresholds)

Property Holding Entity Combined Site Value Multiple Holding Land Tax
1-5 Various – assessed as having the same ultimate owner(s) $2,325,000.00 $51,095.00

In this example, by assessing the holdings under the proposed changes, the annual land tax bill has increased from $1,860.00 to $51,095.00. This represents an increase of over 2,500%.

A further proposed amendment will be the introduction of a surcharge on land owned in trusts where the interests in land of trust beneficiaries are not disclosed by taxpayers or cannot be identified. Heavy penalties under the tax avoidance legislation may be imposed on those investors who continue to set up complex company and trust structures in an effort to disguise the ultimate owner of land.

The proposed changes will have a significant effect on land owners, property values and investment returns, with many property holders likely to be impacted.

Johnston Withers Lawyers and Conveyancers: Experience You Can Trust

Johnston Withers Lawyers and Conveyancers have a team of experienced conveyancers and property lawyers who are able to assist with a review of your property holdings and discuss how these proposed changes may impact your property portfolio. Connect with our Team today.

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