Minimising Land Tax Spreadsheet

Hi All,

My GF and I have been planning to spread our investments across states to limit land tax exposure, so that it doesn?t kill cashflow and positive geared deals. So far it?s just NSW, ACT, SA, but we?re looking at VIC and QLD next. We thought we knew the thresholds pretty well but it?s hard to keep track of everything and we didn?t know as much as we thought! So I thought I?d get it down in a spreadsheet I can refer to any time we are buying more property, so we know the risk of additional cashflow costs before buying in a state.

The attached spreadsheet details this summary.

I?m wondering if someone can help me fill it in by adding detail around column K as I understand that some states allow Trusts to get a new threshold for every trust?

ps does anyone know what the difference in calculation is for single holdings or multiple holdings since some states have two calculators? Do they give you a different threshold or something?
 

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  • Land Taxation Analysis 2014 v1.1.xlsx
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Recheck your rate for >$2m in NSW, should be $33,812 for the first $2,519,000 then 2% over that.

It is better to use the formula (LV-threshold)*1.6%+$100 for <$2M or $33,812+(LV-$2m)*2% for other cases
 
Thanks Scott

I used the online calculators for those figures, not sure why it's wrong but will check it out.

The figures are then hard coded in.
The percentage is the average rate at that amount, not the marginal. Just so I can get an idea how badly the government is gouging us
 
Dan, don't discount investment in a state just because you're going to hit the threshold, you need to thoroughly analyse net return not how much one unpalatable tax will cost you. It is often the case that the most expensive states also provide you with the best results eg capital gains or rental return (or both).
 
Yeah I agree totally, and I'm sure I will be investing in NSW for years to come even though I'm over the threshold. I like NSW because I know it well, I have lived in various places, and it has good inflow of migration, and low release of new land, which means capital growth is a long term given.

Although not making decisions purely on tax reasons, I do think it's really important to know what you're getting yourself into when it comes to land tax and how it can kill cashflow. For example in SA it would be quite easy to buy too much property that would move into extremely high land tax marginal rates.

Over $1m land value, the rate is 3.7 percent! What if you want a 7% yielding property and are buying in SA just for the 6.5% yield. Before you even start, yield is reduced down hugely just because of land tax. If it's a house and the land value is half of the purchase price, the yield goes down to 4.65% (6.5% minus 1/2 of 3.7%). This would be a negatively geared property on par with a growth investment instead of an income investment (SA not being know for stellar capital growth). I know that is an extreme example but it's good to keep an eye on things :)

For purchasing go/no-go decisions I use a spreadsheet to check the yield and the monthly holding cost or profit, and the net yield I calculate including the costs (insurance, property man, interest, etc) and adding land tax in is a part of this. Sometimes it may mean the difference - although would not be the primary reason for not investing in that state. If a yield was astronomical and could make it work even with the tax, sure I would buy there!

However fortunately there are many other reasons to invest in multiple states. My goal is to have properties in every state eventually because:
a) Diversification of risk
b) Different states markets move at different times

Reason b) being the most important. If I have property in every state, it's likely I can buy property almost every year, because there will usually be at least one state that goes up. From that state I can take my equity loan as the next deposit. Therefore I will have no idle lazy years.

I'm hoping that this diversification has the nice side effect of avoiding too much land tax, and avoiding needing to open too much trusts (I hate admin, and they cost money too, and I don't need asset protection in my job).
 
Hi All,


I?m wondering if someone can help me fill it in by adding detail around column K as I understand that some states allow Trusts to get a new threshold for every trust?

Only QLD...I will save you the effort.

HOWEVER -- Qld Duties Act has a nasty provision no other state has that applies to trusts. Its an indirect duties assessment rule. If you change unitholders in a unit trust or change some elements of a disc trust in QLD it can result in transfer duty on a portion of the property market value......You need to understand how that operates BEFORE you setup the structure and make sure it complies thereafter. Setting up multiple trusts can be done wrongly and still result in ONE threshold too.
 
Recheck your rate for >$2m in NSW, should be $33,812 for the first $2,519,000 then 2% over that.

It is better to use the formula (LV-threshold)*1.6%+$100 for <$2M or $33,812+(LV-$2m)*2% for other cases

Except if its a trust. Then you need to look through if its a unit trust and use the underlying unitholders land tax rates. (eg 50- SMSF etc) If its a Disc Trust then you can remove the threshold and the +100....
 
Hi Paul

Only QLD has a new threshold for trusts? You sure?

I've heard of people in other states opening a new trust every 4 properties to stay under the threshold..
 
Remember in WA you could buy $900k worth with being liable for Land Tax if you structure it right.

ie 1 @ $300k in both names, 1 @ $300k in your name and 1 @ $300k in GF name

Can always setup discretionary trusts after that for each property to receive the threshold.
 
Certainly a separate trust accesses a separate threshold to the individuals in WA. Benefits of separate trusts may be available but depends upon underlying beneficial ownership etc, financing, SMSF, changes to ownership without duty etc....

Macquarie Group Services fact sheet on the WA Property trust has a great table that compares various structures and some benefits. https://prc.macquariegs.com.au/content/papers.aspx
 
Remember in WA you could buy $900k worth with being liable for Land Tax if you structure it right.

ie 1 @ $300k in both names, 1 @ $300k in your name and 1 @ $300k in GF name

Can always setup discretionary trusts after that for each property to receive the threshold.

At what point does it become self-defeating when the cost of accounting etc for the structuring outweighs the tax?
 
Your spreadsheet doesnt work for the ACT. In the ACT your land tax liability is per property, it isn't cumulative.

For example.

1 property with land value of $230 000, you would pay land tax of $1600.

If you had three of these properties you would have $690 000 of land, and a land tax bill of $4800. (3 lots of $1600)

However, you could also have a single property with land value of $690 000 and pay land tax of $9420.


How much land tax you pay is dependent on the value of each piece of land you own.
 
Hi Terry - the state was SA. My PM there says he has clients who buy properties in several trusts so they don't have huge land tax bills.

Hi Nemo - thanks that's something I didn't know. I will note that down.


At what point does it become self-defeating when the cost of accounting etc for the structuring outweighs the tax?

Hi Scott - regarding costs, the intention was not to just use a trust for only 3-4 properties in one state, the intention is to use each trust across all states (unless structure needs to be different). So if you hit the threshold with a trust in a state, you do need a new trust, but it doesn't mean you can't use that trust anymore. You can still buy properties in that trust in other states where it hasn't hit the threshold yet.

For example:
Trust1: 3 properties SA, 3 properties WA, 3 properties QLD, 3 properties VIC/TAS, etc
Trust2: Buy next set of properties..

So while the annual cost of maintaining a trust may be ~$3000 per annum, if you were to be paying full land tax on the above 12 properties (because assumption is you are at the threshold personally already), the land tax would far exceed the cost of maintaining the trust.

This is not the only consideration for me. For that I need to talk to someone like Terry W to setup structuring, for example:
* Can I negative gear with a trust?
* How does it affect my ATO income tax?
* Can I distribute the income of positively geared properties?
* How much administration is involved?
* How difficult is it to borrow money, can I still get LMI if I need to?
* What kind of trust and how to structure it etc?

But for now I'm just curious what the options are. I've only hit the threshold in NSW and SA so far, and can grow in other states without paying land tax. But I think if I'm going to consider structuring it's better to start thinking about it early and educating myself.

It's an interesting puzzle to figure out anyway.
 
So while the annual cost of maintaining a trust may be ~$3000 per annum, if you were to be paying full land tax on the above 12 properties (because assumption is you are at the threshold personally already), the land tax would far exceed the cost of maintaining the trust.

This is not the only consideration for me. For that I need to talk to someone like Terry W to setup structuring, for example:
* Can I negative gear with a trust?
* How does it affect my ATO income tax?
* Can I distribute the income of positively geared properties?
* How much administration is involved?
* How difficult is it to borrow money, can I still get LMI if I need to?
* What kind of trust and how to structure it etc?

But for now I'm just curious what the options are. I've only hit the threshold in NSW and SA so far, and can grow in other states without paying land tax. But I think if I'm going to consider structuring it's better to start thinking about it early and educating myself.

It's an interesting puzzle to figure out anyway.

What makes you think a trust costs $3000 pa to run?
Could be nil to around $1000 if the trust owned one property.

* Can I negative gear with a trust?
You could borrow to buy units in a unit trust

* How does it affect my ATO income tax?

Depends. If you own units it certainly would, if the trust was discretionary and you received income it certainly would. Otherwise generally no effect.


* Can I distribute the income of positively geared properties?

Trustee can distribute income depending on the type of trust and the terms

* How much administration is involved?
Similar to operating in personal name - need to keep records, open bank accounts etc

* How difficult is it to borrow money, can I still get LMI if I need to?

Virtually the same. LMI is available as are 95% loans

* What kind of trust and how to structure it etc?

Similar question to what kind of food and how to cook - it all depends.
 
If you need to minimise your land tax spreadsheet, you can just click the button at the top right corner of Excel

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Hi Terry,

Thanks for that, I'll still try and avoid setting up trusts until I absolutely have to :) But good to know it's possible one day.

If you need to minimise your land tax spreadsheet, you can just click the button at the top right corner of Excel

min_max_close.gif

Dave thanks, I just needed some help to find that :D
 
Remember in WA you could buy $900k worth with being liable for Land Tax if you structure it right.

ie 1 @ $300k in both names, 1 @ $300k in your name and 1 @ $300k in GF name

Can always setup discretionary trusts after that for each property to receive the threshold.

That's the same in SA too. Is it the case in the other states? Would be worthwhile to go into the spreadsheet too I would have thought.
 
WA and SA both have landtax free thresholds circa 300k
This means you can buy in your name up to value of 300k, then in trust up to the value of 300k, then another trust up to the value of 300k all the while paying nil.

In Queensland the same concept exists, but the difference is whereby people and trusts have different tax free thresholds.

They're the only 3 states i buy property in, so unsure on the others ;)
 
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