Land tax is a tax payable based on the combined unimproved value of the land a person or entity owns. The land tax is calculated based on how much the land in question would be worth were it vacant. In other words, the land tax is payable on owned property and not the principal place of residence. The tax is imposed by all the state and territory governments; however, the rules and thresholds of the land tax impost differ with different states and, therefore, do exists. In recent years we have experienced booming property values, and land tax has become a greater burden to many Australian property investors. To every property investor, the land tax represents a high cost to owning property investment. Often investors raise the question of how can such land tax liabilities be minimised.
Encouraging, there exist ways as well as individualized tax planning strategies from a tax expert, all of which are legal that could help minimise the land tax burden.
1. Use the name of a person who may not have exhausted their respective threshold in a given state to buy a property
Since every person has a specific limit which, when exceeded, the cost of land tax in Australia goes up. Therefore, by using the name of the spouse whose threshold in a given state is not used up to buy a property, the new threshold is absorbed hence tax lowered.
2. Purchase a property such an apartment whose land values are below a certain threshold for the home state.
Houses usually have high land components compared to apartments, and one can own several apartments all within an individual’s threshold in some states of Australia. Nevertheless, it is essential to scrutinize land components of the investments of interest to determine the validity of a certain threshold.
3. Diversification in property investment in different states.
Investing in varying states of Australia, the land tax threshold ceiling would remain untouched, unlike single state investment. The spreading properties` investment in various states, the land tax paid reduces due to spread land values at different thresholds. Therefore, carry your eggs all, not in one basket.
4. Land tax liability can be reduced by the use of distinct firms or companies that offer an individual a separate threshold for a different property.
In various states of Australia, some entities exampled by the fixed trust can provide investors with a separate threshold within their rights, which enables them to enjoy several thresholds, thus lowering land tax liabilities.
5. The land purchase and sales time coupled with land tax assessment date per state.
Consideration of land tax assessment dates is an essential factor when selling property since the property seller is obliged to payment of land tax should it not be settled by the assessment anniversary. This would help reduce the incurrence of such tax even after the property sale.
Importantly, such ways shouldn’t be construed to mean failure to pay land tax for your properties. However, while evaluating the cost of holding an investment property, consideration of land tax, among other expenses, should be factored in to determine the capital gain in long-term investments realistically.
Do you think you may qualify for these land tax exemptions? Call BOA & Co. accountants in Chatswood on 02 9904 7886 and our specialist will be pleased to assist you.