South Australia Land Tax Reform
Proposed Land Tax Aggregation Measures
Much has already been written about this year’s SA State Budget, in particular the Land Tax Changes propose to crack down on land tax loophole which allows owners of multiple homes to pay less tax. Notwithstanding that strong opposition from the property and business sectors, the SA State Government is sticking with its land tax aggregation reform, in its third-revised bill to get through the Parliament, backed by the Property Council of SA and Liberal Party. The Labour Opposition has declared it will vote against it. The Bill is currently before parliament.
Whilst the reduction in top marginal land tax rate is welcomed, the aggregation changes and the surcharge imposed on certain trusts will undoubtedly have adverse impacts on property owners.
Key takeaways from the Land Tax Reform Package:
- From 1 July 2020, the minimum threshold is increasing to $450,000 and the top marginal rate reduced to 2.4%, from 3.7%;
- Changes to aggregation provisions based on an owner’s interest in every piece of land (a look-through approach to determine the “true owner” of land);
- Grouping of two or more related companies for Land Tax Purposes; and
- Introducing a surcharge on land owned in trusts in cases where the interests in land of trust beneficiaries are not disclosed or cannot be identified. Special disability trusts, guardianship trusts and Superannuation Funds are excluded from trust surcharge.
The proposed changes will have different impacts on land tax assessment for SA land held in company and trust structures. The new aggregation provisions look through separate legal structures to determine the true owner of land provide for a level playing field.
Individual owner will be assessed on their ownership proportion for land tax purposes. All direct property holdings are aggregated and a non-refundable credit will be available for the share of land tax paid at property levels.
For land owned in unit trust or fixed trust holdings, surcharge rates of land tax which include a 0.5% will be applied unless the trustee notifies the Commissioner of the trust’s unitholders. Each unitholder will be assessed on their share of their property in their own aggregated land tax assessment and will get a non-refundable credit for tax paid by the trustee.
For land owned in a discretionary trust, the trustee will be subject to land tax at surcharge rates. The trustee will have the ability to elect to nominate a beneficiary of the trust as the “owner” of the land held in trust for land tax purposes. Note that this nomination must be made no later than 30 June 2020 and only applies to land already held by the trust on the day the draft bill is introduced to the Parliament. Where nomination is made, trustee will not be assessed a surcharge. The nominated beneficiary will be assessed on their share of the land held in the trustee in their own aggregated land tax assessment. A non-refundable credit for tax paid by the trustee will be available.
For property held in related companies, “grouping” will apply for land tax assessment. Related companies are grouped where a person or group of persons in the companies:
- holds or controls 50% or more of issued share capital;
- are in a position to cast or control the casting of more than 50% of the maximum number of votes that might be cast at a general meeting; or
- controls the composition of the Board of Directors.
Superannuation Funds and certain other trusts will be excluded from the trust surcharge arrangement.
If you hold one or more properties and are concerned the land tax changes may adversely affect you please contact our office to organise a meeting to review your circumstances. We recommend making the time to commence planning to structure your land holdings as soon as possible.
Please contact our office if you would like further information about the Land Tax (Miscellaneous) Amendment Bill 2019.
By Wen Yee. Senior Accountant – Venture Private Advisory.