The Land Tax (Miscellaneous) Amendment Bill 2019 (Bill) in its final form (after various versions) received Royal Assent on 5 December 2019. The new measures set out under the Bill will commence on 30 June 2020. The measures represent significant land tax reforms and will impact all property owners.
- The key changes made under the Bill include:
- an increase in the threshold for the top marginal rate of 2.4% to $1.35m (from $1.1m);
- a reduction in the top marginal rate of land tax from 3.7% to 2.4% (see the new rates below);
- a lower rate of 1.25% (from 1.65%) for land valued between $755,000 and $1.1m (for non-trust taxpayers);
- a newly introduced tax bracket of 2.0% for land valued between $1.1m and $1.35m;
- a further increase in the top marginal threshold to $2m from 1 July 2022; and
- various new concessions regarding specific residential development
The measures under the Bill significantly change the current land tax provisions in relation to the following:
- jointly owned land;
- land held in trusts; and
- land held in corporations
Jointly Owned Property
Land held by multiple owners will initially be assessed as one taxpayer. Each owner will then be assessed on their fractional interest in the jointly owned land (aggregated with their other interests in taxable land) with each owner receiving a non-refundable credit for the initial tax assessed. This is likely to increase the land tax liability for mums and dads who own property jointly and individually.
Trustees are not subject to aggregation unless the property is held for the “same trust”. Land tax will be applied to the property held by the trustee at surcharge rates unless a designated beneficiary is nominated. Land that is acquired by the trust after 16 October 2019 will attract the surcharge rates.
If a nomination is made (must be done no later than 30 June 2021), the trustee will be assessed at general rates and the beneficiary, deemed the “owner” of the land for land tax purposes, will also be assessed at general rates (aggregated with any other interests they hold in taxable land).
Fixed And Unit Trusts
The trustee of a fixed or unit trust will be assessed at the surcharge rates unless the Commissioner is notified of the unit holders, in which case the trustee will be assessed at the general rates and the unit holders assessed on their proportionate interest in the land held by the unit trust (aggregated with all the unit holders’ interests in other taxable land) and assessed at the general rates. The unit holders will receive a ‘deduction’ on account of the land tax paid by the trustee. Land held by corporate trustees of unit trusts and fixed trusts could be grouped with land held by related corporations where more than 50% of the units or interests in the trust are held by a company or company group.
Trustee Reporting Requirements
The new measures impose substantial notification requirements on trustees, these include notifying the Commissioner when a trustee acquires or disposes of SA real property, when there has been a change in the unit holdings of a unit trust holding SA real property and when “anything happens” that results in the trust becoming a “different category” of trust. Notifications must be made within one month of the prescribed event occurring. Trustees that hold SA real property at the commencement of the new measures (30 June 2020) must notify the Commissioner by 30 July 2020.
Various types of trusts will be excluded from the new measures including complying SMSF’s, LRBA bare trusts, deceased estates, charitable trusts, public unit trusts and special disability trusts.
New measures have been introduced to group “related corporations” for land tax purposes. As such, land tax will be assessed on the aggregated value of the land held by all related companies. Assessments may be issued to companies jointly or separately such as to make the related corporations jointly and severally liable for the land tax assessed on the group. Therefore, the Commissioner in practice may chase the assessment for the whole group from the company in the group with the greatest capacity to pay the assessment.
Whether companies are related will depend on whether the same “person” or “group of persons” have a “controlling interest” in the company. The new measures are potentially very broad in application, in general terms, when determining “controlling interest”, taxpayers should consider who:
- controls or is able to control the board;
- is able to cast or control the casting of more than 50% of the votes at a general meeting; or
- holds more than 50% of the issued capital of the company.
The Bill introduces various new concessions, these include the following:
a $25 million transitional fund over 3 years for eligible individual taxpayers and company groups only for land held at 16 October 2019 with possible relief (up to certain amounts) from any increase in land tax liability due to the new measures under the Bill;
land tax concessions for eligible developers of “affordable community housing”; and
specific relief from the company grouping provisions for eligible residential developers.
Under the new measures, planning considerations include:
Determining the type of trust. In particular with unit trusts and discretionary trusts. The type of trust will impact the land tax obligations of the trustee (e.g. unit trust does not require consent to notify the Commissioner of the unit holders of the trust, while the trustee of a discretionary trust must obtain consent to make the required nomination). For example, if the trust is a unit trust, a unit holder’s interest in the trust may be aggregated with their other interests in taxable land without their knowledge.
Nominations and notifications for trusts. Care must be taken to determine whether the nomination should be made or that the trustee is assessed at the trust surcharge rate. There are limited circumstances under the new measures to change a nominated beneficiary of a discretionary trust. Making the nominations and notifications requires a detailed review of the tax profile of the beneficiaries and unit holders.
Companies within a family group should review director and shareholding structures to determine whether companies within the group are “related” under the new provisions.
Taxpayers should consider any restructuring opportunities for land held in companies (other issues to consider include capital gains tax, GST, stamp duty and general anti-avoidance provisions).
The cost impact of the new trust reporting requirements
General Rates 2020/2021 Income Year
|Taxable Value of Land||Amount of Tax|
|0 to 450,000||$0|
|450,001 to 755,000||$0 + 0.50% of excess|
|1,098,001 to 1,350,000||$5,812 + 2.00% of excess|
|Over 1,350,000||$10,852 + 2.40% of excess|
Trust Surcharge Rates 2020/2021 Income Year
|Taxable Value of Land||Amount of Tax|
|0 to 25,000||$0|
|25,001 to 450,000||$125 + 0.50% of excess|
|450,001 to 755,000||$2,250 + 1.00% of excess|
|755,001 to 1,098,000||$5,300 + 1.75% of excess|
|1,098,001 to 1,350,000||$11,302 + 2.40% of excess|
|Over 1,350,000||$17,350 + 2.40% of excess|
We recommend that property owners review their existing property structures as soon as possible to ensure they are familiar with the new measures and to determine the impact of the new measures on their existing property structures.
Please do not hesitate to contact us on (08) 8212 2366 if you have any queries.
The comments above are of a general nature only and are not intended to be, and should not be regarded as, legal advice. For legal advice on your specific circumstances, you must consult a suitably qualified professional advisor. Content by WRP Legal & Advisory.