Land tax is state specific, with different states having different rules and thresholds. For every property investor, these rules and thresholds can present challenges, especially when it comes to the cost of a property investment. The goal here is to show you how you can be smart with the law, saving money on land tax with our strategic advice.
We’re not suggesting that you should consider not paying land tax for your property, because in the long term an investment of this kind could outweigh the costs of holding the investment. This includes land tax however, it might be advisable to think about the impact of land tax when investing in more property.
1. Purchase the property in the name of a person who has not already hit the threshold in a state
A good example of this is when a couple decide to purchase investment properties. For example the husband might already have a property in his name; hitting the threshold. Therefore, he might consider acquiring any more properties in his wife’s name.
You should still be mindful that there may be tax implications here, especially if the property is negatively geared. It is also worth mentioning that any asset protection, planning protection and tax triggers associated with an investment should be considered when passing it on to the next generation. You should seek specialist advice here to avoid any legal conundrums.
2. Buy apartments with lower land values below the threshold of your state
Generally speaking, apartments tend to have lower land mass compared to houses. It’s therefore advisable that you should check the land components of an investment to find out if you have reached the threshold. It could be that you can own multiple apartments before ever getting near the threshold for that state.
3. Use fixed trusts and other entities to split up the threshold
The use of a separate entity to yourself can allow you to essentially have multiple thresholds. Before you invest however, seek some independent advice on the tax situation surrounding the property. It could be that the tax situation changes if you’re acquiring properties under an entity and not under your own name.
There might also be tax implications and some inflexibility when it comes to these situations, so it is definitely worth seeking professional advice.
4. Sale and purchase of land should be considered carefully; in particular the date of assessment for land tax
When selling a property, you should aim to wrap up an agreement before the land tax anniversary. You’ll also want to be aware of the fact that you may be obliged to pay a land tax for the following year, if you have not settled by the set date.
A prime example of this system is in New South Wales, where the tax date is 31st December. This catches people out who agree the sale but do not settle until the new year, at which point they are hit with a tax bill for a property they no longer own.
5. Invest in more than one state
That old metaphor, “don’t put all your eggs in one basket” springs to mind here. You should be investing in property in a number of different states, especially for avoiding the thresholds. If you owned all of your properties in one state, you’d most likely exceed the tax threshold.
To avoid this, spread out your properties across different states, accruing less land tax as you’ve spread the value of the property across a number of different thresholds.
When investing in property, you need to get your priorities straight. It might seem obvious, but land tax is not going to be top priority when buying a property. You need to make sure your new investment ticks all the major boxes first, before thinking about whether you can save on some land tax.
When thinking long term however, you’ll definitely want to think about seeking advice from a tax specialist – they may be able to put in place a strategy to help you minimise costs and manage property tax across states.