I am just wondering how people with multiple propertes manage their Land Tax in a buy/hold situation. In South Australia, the land tax is 1.65% p.a. on every dollar of land you own above 300K. Above $1M it is a whppoing 3.70%. Surely this has a huge affect of the ability to positively gear a property portfolio of the size you’d need to provide a retirement income. I read of people in investment books collecting millions of dollars worth of real estate, but there is never any mention of 3.70% p.a. land tax (it is half the mortgage again).
PS. These figures sound so high you probably think its a typo, check out http://www.revenuesa.sa.gov.au for confirmation of accurate figures.
Here are some other calculators (including SAs) to help you work out what you will be pay:
VIC
http://www.sro.vic.gov.au/sro/srowebsite.nsf/landtaxNSW
http://www.osr.nsw.gov.au/portal/page?_pageid=33,1&_dad=portal&_schema=OSRPTLTWA
http://rol.osr.wa.gov.au/taxcal/SA
http://www.revenuesa.sa.gov.au/taxes/ltax.html#CalculatorTAS
http://www.treasury.tas.gov.au/domino/dtf/dtf.nsf/stat-v/215QLD
http://www.osr.qld.gov.au/calcs/downloadzip.htm
(You will need to download the calculator)For more information visit the ATO website (land tax section):
http://www.ato.gov.au/businesses/co…=&mfp=&st=&cy=1Quote: Land tax is imposed in all states and the ACT, but not in the Northern Territory. It is a tax levied on landowners, except in the ACT where it is levied on lessees under a Crown lease.
Cheers,
Jo
Ok, it looks like SA is copping a worse deal than other states, but it seems that other states are still paying about 2% p.a. on larger property portfolios. This HAS to be CRIPPLING to positive cashflow. I haven’t read any of McKnight’s books yet, but a fari few on the subject of R/E investing.
Does Steve address this in his books? I am guessing that it would have been an issue while he was buying 100 properties in 3.5 years??
M75,
Ah – my favourite subject – land tax !!!! One that most of the property gurus like to brush over as being just a price you need to bear…bugger that.
I remember reading something from a famous Qld lady when she brushed it off by saying, “It’s small in comparison to the overall scheme of things and it’s firmly entrenched in the State’s budgets so just get used to it. Usually it can be offset by smart financing and a slight increase in rent.”
I agree with her second point, but points 1 & 3 are absolute H.S, especially as your portfolio starts to climb up into a serious level.
We wrote a cheque out for over $ 36K last year but shall not be stung again.
We were always advised to put the RIP in the name of the highest earner and hence they are able to claim the deduction with the best effect….well, that’s true up to a point. This Land Tax issue soon swamps the tax benefit and the tactic is definitely not the way to go.
We solved the problem by allocating different tenant in common percentages to each place. Have one RIP (100 / 0), have the next (99 / 1), the next (98 / 2) etc…
You get almost all of the tax deductions heading to the highest earner, but the State Revenue Dept classifies them as different owner structures, and so their ‘cumulative’ rule for tax assessment – which is the real killer – doesn’t kick in. Every RIP value starts from scratch instead of being lumped on top of one another for assessment purposes.
This tactic alone shall save us over $ 30K this year and more every year thereafter.
Of course, the best tactic of all for avoiding Land Tax payments is to have the tenant pay it, as you get with CIP and IIP. We have this going now, and compared to RIPs, it’s heaven on a stick.
Hope this helps.
Cheers,
Dazzling
“Go hard or go home”
Nice one!! Thanks very much. 3 more questions.
Can you change ownership structure without selling to ourselves and paying stamp duty? How did you get around this one?
Can you remember where you learnt this?
Thanks again.
Dazzling
I couldn’t agree with you more. It becomes a major burden as it increases exponentially. I was bitching about paying 10K last year but 36K is murder.
The solution you mentioned is one, or else you get into setting up a Trust for every property (expensive and a lot of paperwork) or spreading your investments across different states.
Mogul75 has a point in that this burden is rarely if ever covered in any of the books we all read.
In WA properties deemed to be in the metropolitan area also cop the Metropolitan Regional Improvement Tax on top of the Land Tax.
Regards
Clive
Thanks for your input Clive. I will certainly take that on board. I can concentrate some investments in the Mildura area (I live in Adelaide) its only 4-5 hours away and there are two states either side of the river.
Answering my own Question relating to changing ownership structure.
According to the SA land titles office it is just a registration fee of $98 per property. I think I better get onto a good R/E accountant to see what the tax consequences are.
Firstly, can I ask what CIP, IIP and RIP are?
Obviously IP is investment property, but the rest?
We solved the problem by allocating different tenant in common percentages to each place. Have one RIP (100 / 0), have the next (99 / 1), the next (98 / 2) etc…Im not quite sure I am understanding what you are saying here. Im understanding it that you placed a different tenant in each of your properties… which is what you do anyway. So I dont think Im getting you there.
From what I understand there are two ownership types: Joint owners (ie. married couples usually choose this), or tenants in common (ie. business partners).
With tenants in common you can apportion the ownership between the owners, eg. Tenant in common 1 owns 50%, TIC2 owns 25%, TIC owns 25%.
The suggestion in the post was to put in Tenants in common with a slightly different percentage for each property therefore a different ownership structure is seen by the revenue offices. Therefore each is seen as a different property portfolio and thus accrues land tax at the bottom end of the sliding scales.
RIP = residential IP, CIP = commercial, IIP, I guess is Industrial?
Therefore each is seen as a different property portfolio and thus accrues land tax at the bottom end of the sliding scales.Oooh, that’s pretty sneaky.
Is that taking advantage of a loop hole that states that tax is based on % ownership, or lazyness on the part of the Tax man?
Surely this would pretty dangerous if it were the latter?
Why would such a rule be in place? I dont understand why they just wouldn’t have a blanket, “total value of your properties, on this sliding scale”. Is there a legitimate reason for this?
Unannounced,
I don’t have the time or inclination to question why State Legislatures make up the laws, or what the over-riding intent was regarding drafting the laws.
As investors, isn’t it best to simply find out what the relevant laws state exactly and then devise your investment strategy in accordance with those written laws ??
I fail to see anything that is sneaky. Certainly no loopholes either…’playing the game’ exactly as the laws are written.
Good hunting to you….
Cheers,
Dazzling
“Go hard or go home”
Yes, we found this out by accidnet that this occurs. We bought the first IP in joint names, the 2nd is hubby’s name as it’s -ve geared and he earnt more and the 3rd and 4th in my name as +ve geared.
When we didn’t get a bill for land tax I rang up to query where it was (yes, I know that sounds odd, but I didn’t want a big bill years down the track when they caught up with us) and the lady said that as the ownership is different on each property except the last two and the last two combined didn’t go over the threshold we therefore weren’t eligible for a bill. Nice way to put it, but have kept it in mind ever since. (This is in WA).
Also if your properties are in differnt states then you can keep your bill down as each state charges their own land tax and it’s not calcualted across all your properties only the ones you own in that state.
PK
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