The SA land tax “battle” is finally over. The Government’s land tax reform Bill has received Royal Assent and the new measures will take effect from 30 June 2020.
The new provisions are lengthy, detailed and complicated, and will need to be reviewed closely by property owners and their professional advisors. Importantly, there may be a number of opportunities for reducing the land tax potentially payable.
The new legislation differs in many respects from the Government’s initial proposal and contains significant concessions that were required to secure support from both Houses of Parliament.
Nevertheless, the measures represent significant and genuine tax reform, which should improve South Australia’s competitiveness to do business. In particular:
- the top rate of land tax will be reduced from 3.7% (highest rate in Australia) to 2.4%.
- the thresholds at which the marginal rates apply have been significantly increased, and new reduced rates introduced; with the Government claiming 90% of taxpayers—including “mum and dads” who have invested in SA real estate for their retirement—will be better off.
- $25 million has been set aside to provide transitional relief, over the next 3 years, for those adversely affected by the changes.
Key Changes to SA Land Tax
- Trusts will be subject to a 0.5% surcharge where they own property with a site value exceeding $25,000. They will not be entitled to the new tax-free threshold of $450,000 applying to other taxpayers. However, the surcharge will not apply to:
- discretionary trusts that owned SA land on 16 October 2019—by nominating an individual as a “designated beneficiary” and paying land tax as if the land were owned by that individual.
- fixed and unit trusts—by notifying the Commissioner of the holders of the fixed interests and units, in which case those entities will be liable for the land tax.
- certain excluded trusts, including charitable trusts and complying superannuation funds.
2. Trustees will also be subject to extensive notification requirements. In particular:
- a trustee who acquires or disposes of SA land must notify the Commissioner within 1 month of acquisition or disposal.
- a trustee who, at the time of the commencement of the measures (30 June 2020), owns SA land must notify the Commissioner of that fact within 1 month of commencement.
- a trustee of a fixed trust or a unit trust must notify the Commissioner within 1 month of a change of beneficial ownership or a change in unit holdings.
3. The value of land held by “related corporations” will be aggregated and taxed as if a single taxpayer owned all of the land. Related corporations will therefore no longer be treated as separate taxpayers. However, an exemption from aggregation will apply where land is held for the purpose of being developed as a residential development of more than 10 allotments or lots.
4. There will be a 12-month land tax concession for developers of affordable housing, with ex-gratia relief to prevent land used for affordable housing being aggregated with other landholdings, provided certain conditions are met.
5. Trustees of discretionary trusts owning property before 16 October 2019 will need to decide whether:
(a) they can nominate a designated beneficiary; and
(b) that will be worthwhile from a tax-saving viewpoint.
They may also need to consider whether it is possible to nominate interstate and/or overseas family members as designated beneficiaries.
6. Fixed trusts and unit trusts need to review whether they should notify RevenueSA of the holders of fixed interests and/or units.
7. Investors owning property through 2 or more separate companies need to determine whether those companies will be related corporations.
8. Investors adversely affected by the changes should examine whether they are entitled to apply for transitional relief and/or whether it would be worthwhile restructuring.
9. Perhaps most importantly: investors need to give careful thought to the manner in which future property purchases should be structured to minimize the effect of the new rules.
10. Bearing in mind that, in certain cases, it should be possible for a family to hold land as natural persons, in trusts and companies, and in self-managed superannuation funds (SMSFs), without properties being aggregated into a single ownership.
We strongly recommend clients start examining their property structures as soon as possible to make sure they only pay the correct amount of land tax from 1 July 2020.
This Alert is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek professional advice before acting in relation to these matters.