Just received all of our Land Tax bills from the SRO the other day.
Last year we paid $36K in Land Tax and weren’t too impressed with what the State Govt gave us in return….zippo…except they left our titles clear and didn’t slap a Warrant on the title for unpaid Land Tax.
We refused to believe many of the property guru’s who continually said it was “just a cost of owning property, get used to it, just include it into your cashflows and move on, just increase the rent by $10 p.w., that’ll cover it”.
Last fin. yr we did quite a bit of jiggery / pokery to rectify the situation. This included ;
1. Shuffling ownership percentages between the wife and I so that no two properties are owned by the exact same legal ownership %…hence the compounding regime that the SRO uses to calculate your Land Tax liability does not kick in.
2. Stopped renting and moved into the IP that was fully paid off.
3. Only purchased IP’s where the tenant paid the Land Tax on the property.
The wife learnt point # 1 on the job as an aside during her trainee PMship and that one piece of knowledge has and will pay for itself over and over, orders of magnitude more than the salary she received. She’s since quit and now manages the portfolio whilst I am out of the country, the pay is a tad better.
The action was confirmed when we received separate Land Tax bills for every legal ownership regime and each property starts from scratch and hasn’t been compounded !!! It worked.
Through our activities last year, we managed to triple our portfolio exposure and simultaneously reduce our Land Tax bill down from $36K to $7K. This saving of $ 29K ($558 p.w.) shall be enjoyed not only this year but every year henceforth.
Depending on your individual situation, I believe this Land Tax philosophy over-rides the general held belief that it is better to put the negative cashflow props. all in the highest income earner’s name. 100 / 99 / 98 / 97 etc to claim the majority of the losses and dodge the compound Land Tax effect…but surely not all 100%. Surely this is a case of having your cake and eating it at the same time.
I’m happy. [biggrin]
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Congrats Dazzling..
It always seems to take a bit of “jiggery” to get things happening again..
Did your wife do a PM course with REIWA?
I see at TAFE (Joondalup) now they are doing Property Investing and the REA course.
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorDazzling,
Regarding your “Point 1” can you confirm (or not) my understanding:
Currently I have 2 properties owned by the same Fam Trust and hence suffer from the compounding regime, huge land tax bill!!!
So to applying your point 1, if the trust sells 1% of one property to me then these two props are treated as having 2 different owner entities , and hence each gets its own land tax bill thus avoid the compounding regime ??
Is this correct ?
ThanksBrissy,
I’m not qualified to give advice. I don’t know your full circumstances. All I can say is what worked for our situation, having taken some legal and accounting professional advice.
I’d suggest having a chat to your professional advisers…the cost of doing that compared to the ongoing higher Land Tax bills will probably be money well spent.
Maybe ask them why they didn’t suggest it to you in the first place ?? With trusts though, I reckon there would be a lot of factors to take into account. Changing the ownership structure may affect other areas that you currently enjoy…who knows….
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Dazzling,
Changing the percentages wont help unless you introduce another owner onto the title (in WA not sure about other states).
ie dazzling 50% mrs dazzling 50% will be aggregated on the same land tax client ID as dazzling 99% mrs dazzling 1%.
A couple could have 3 separate ownerships to limit the aggregation.
ie dazzling – owning land only
mrs dazzling owning land only
mr and mrs dazzling owning land togetherThis would have the effect of minimising land tax rather having all the land under one name or in joint names.
The problem with moving land around of course is that you will trigger a stamp duty liability which cant be avoided, so you have to do the sums. If it is an expesive property this can be a very costly exercise.
cheers.
Originally posted by Bris4171:Dazzling,
Regarding your “Point 1” can you confirm (or not) my understanding:
Currently I have 2 properties owned by the same Fam Trust and hence suffer from the compounding regime, huge land tax bill!!!
So to applying your point 1, if the trust sells 1% of one property to me then these two props are treated as having 2 different owner entities , and hence each gets its own land tax bill thus avoid the compounding regime ??
Is this correct ?
ThanksBriz
Did you know it is possible to split a discretionary trust into two identical trusts each holding one property? And it may be possible to do without major stamp duty implications and no CGT.
Speak to a good lawyer. For a cost of maybe $1000 you could save a fortune.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Dazzling,
My question was along the line of “is my understanding of your point 1 correct” , not your advice on what I SHOULD do…..Terryw,
No I did not know that the split was possible. I shall investigate ASAP as if can do, it would save me thousands each year.
Thanks very much for the tip.Changing the percentages wont help unless you introduce another owner onto the title (in WA not sure about other states).ie dazzling 50% mrs dazzling 50% will be aggregated on the same land tax client ID as dazzling 99% mrs dazzling 1%.
OK….if you say so…
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
I wish it was down to what I say – I would abolish it all together ! Unfortunately it is how the Land Tax Assessment Act works.
Cheers,
Hi Terryw et all,
Just want to update that I have checked the “splitting of one disc trust into 2 ” with my accountant.
He said it won’t work as the land tax man knows to “regroup” the 2 sub-trusts and would calculate the landtax on top of the total value.
Also as I am in Bris, he said the tax free threshold in Qld for trust is very minimum for trust (about 50K or so). Hence even if it works the saving is not worth the trouble !!!Has anyone tried done similar or has knowledge on this and could share their experience it would be appreciated.
Thanks very much.
Bris,
That may be the case, but I would get a second opinion from a good solicitor.
Terryw
Discover Home Loans
Parramatta
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Terryw I think I will.
My accountant in not very prop sawy…I have been looking for a better one in Bris but have not found one yet…(they seem to all be in Mel or Syd
)
taThis has been a great thread Dazz.
Wish I had something to add! All I can say is the possibility never occurred to me.
Munjy
Just found out my accountant spoke c*ap !!!
1./In Qld land tax free threshold for Trusts, companies ect is 300K , NOT 50K as he told me yesterday.
2./ trust splitting does help reducing land tax . Found this from http://www.osr.qld.gov.au/practdir/landtax/lt07-1.pdf :
“
7. Where land (one parcel or more than one parcel) is held in the names of different trustees,
each for an identical group of beneficiaries:
Separate assessments for each trust. While various parcels of land may be aggregated for
assessment purposes if the beneficial ownership of each parcel is identical (refer s.3B – meaning of
“ownerâ€), under s.43(b) of the Act, trustees must be assessed separately in respect of each distinct
trust for which they are acting.
Example:
A is the registered owner of parcel 1 and B is the registered owner of parcel 2. A holds parcel
1 as trustee for the Beaver Trust and B holds parcel 2 as trustee for the Bear Trust. Each
Trust has an identical set of beneficiaries.
– Separate assessments for each trust
“Bris
Try Julia at http://www.bantacs.com.au
Terryw
Discover Home Loans
Parramatta
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thought I would update the forum…
Fifteen days after writing my initial post, the wife called to say she had received a revised land Tax assessment from the State Revenue Office lumping all of the “jointly owned props” in one pile and hence the Land tax bill went through the roof again….substantiating what Benson above has said.
Well I’ve sat down with my accountant and he dug out the relevant sections of the WA Land Tax Act and we both sat down and had a jolly good peruse.
It appears that the wording is very very unclear when it comes to differing percentages. My accountant contacted one of the Land Tax guru’s in Perth and his comment was “Although I have never been asked this question before, it appears a strong case could be argued either way. The Act certainly isn’t clear cut in this regard.”
Due to the amount of money involved, we have decided to challenge the validity of the Land Tax bill received from the SRO….arguing that the legal ownership of each property is different given the differing percentages, and hence should not be aggregated together. The Act certainly does not preclude this possibility.
Anyway, we’ll throw the dice and take our chances.
After the unimproved land values went through the roof on our properties, I thought our jointly Qld owned IP’s would be up for a total of $6k in land tax.
Then the gov’t changed the threshold and I thought we’d be up for only $2000 in land tax. So I rang the land tax office to make sure they had our PPOR details correct so it would be exempt. The lovely girl said the land tax was levied on an “averaged” 3yr valuation. Bingo! No land tax is due this year at all. [biggrin]
If you want to get out of a hole, first stop digging.
Dazzling – “Due to the amount of money involved, we have decided to challenge the validity of the Land Tax bill received from the SRO….arguing that the legal ownership of each property is different given the differing percentages, and hence should not be aggregated together. The Act certainly does not preclude this possibility.”
Any updates on how you are going with this ?
Hiya Benson,
Haven’t been in the country since writing that post…so no progress that I know of, but my switched on accountant has given our folder to his WA Land Tax specialist and we are waiting back from them. I suspect I’ll have some further direction in late Jan ’06.
We were forced to pay the bills as per the Act whilst we put together a case and argue the toss with the Govt. Happy to spend some on challenging the wording in the Act…it’s very vague and open to interpretation. Well that’s my unlearned opinion having read through it, and also my accountants. I’ll hand it over to the ‘wigged squirrels’ and see what they can argue. The volume of dollars justifies taking it pretty high up if necessary. If other people are interested I wouldn’t mind a hand…if you know what I mean. [jealous]
Anyone else have large WA Land Tax bills that they wish to see reduced – give us a hoy.
Mine’s $1250 for our PPOR! Does that count?
Just your regular 3 x 1 in Hedland
Cheers
C@34Our greatest weakness lies in giving up. The most certain way to succeed is to always try something one more time.
– Thomas Edison
)
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