From 1 July 2020 significant reforms to the land tax regime will be implemented under the Land Tax (Miscellaneous) Amendment Act 2019 ("the Amending Act"). The high level of controversy leading up to the passing of the Amending Act has resulted in some significant departures from what was initially proposed by the State Government.
Changes to the land value thresholds and rates
From 1 July 2020 the top land tax rate will be reduced for all taxpayers and the threshold for taxable site value will be increased for land that is not held on trust, as shown in the table below.
|CURRENT REGIME||REGIME FROM 1 JULY 2020|
|Taxable Value of Land||Tax Rate||Taxable Value of Land||Tax Rate|
|= $391,000||Nil||= $450,000||Nil|
|391,0000 < × = $716,000||0.5%||$450,001 < × = $755,000 (approx.)||0.5%|
|$716,000 < × = $1,042,000||1.65%||$755,001 < × = $1,098,000 (approx.)||
(1% from 2022)
|$1,042,000 < × = $1,302,000||2.4%||$1,098,001 < × = $1,350,000 ($2,000,000 from 1 July 2022)||2%|
($2,000,000 from 1 July 2022)
For trustees who hold South Australian land on trust, surcharge rates will apply unless certain notices about the beneficial interest of the trusts are provided to RevenueSA (see below).
Exemptions will still apply to rural land and principal places of residence as well as a limited number of trusts deemed to be "excluded trusts" as defined in the Amending Act (such as superannuation funds and deceased estates).
Changes to the aggregation framework
The lowering of non-trust land tax rates is balanced by the introduction of a new aggregation framework (largely based on the Victorian system) together with surcharge tax rates for trustees of land held on trust. This enables the Government to capture tax that may otherwise have been avoided through what the Government considered to be 'loopholes' created by entity structuring.
There are many changes to be aware of about how trustees and companies holding South Australian land will be assessed for land tax. Those who hold land in trusts or companies will need to review their circumstances to see if they can arrange their affairs in a way to reduce the amount of land tax payable.
Co-owners of land will be assessed in two stages. Firstly, as a sole owner/taxpayer. Secondly, individually based on the proportion of their interest in co-owned land, aggregated with any other land they own. To avoid double taxation, at the second stage of assessment each individual owner's assessment is reduced by their share of land tax paid in the first stage. The reduction each individual owner will receive is proportionate to their interest in the co-owned land assessed in the first stage.
Companies that own land will be subject to "related corporations" rules that examine both the company and those who control it. The effect of the grouping is to assess related corporations jointly for land tax and to then aggregate the land in those related corporations which will result in more land tax being captured than under the old system.
Whether corporations will be grouped as related corporations largely focuses on the proportion of control a person, trustee or corporation holds in a company by reference to the number of shares held, voting power and the composition of the board of directors. If the deemed control is over 50% then the company will be aggregated with other related corporations that the taxpayer controls.
Land held on trust will be subject to a surcharge rate. The trust surcharge rate will apply where the land value held on trust is greater than $25,000. This is much lower than the general tax free threshold of $450,000 for land held by an individual.
|REGIME FROM 1 JULY 2020|
|Taxable Value of Land||Amount of Tax|
|$25,000 < × =$450,000||0.5%|
|$450,001 < × = $755,000 (approx.)||1%|
$755,001 < × = $1,098,000 (approx.)
($2,000,000 from 1 July 2022)
(1.5% from 1 July 2022)
($2,000,000 from 1 July 2022)
Taxpayers can choose to notify RevenueSA that the trust is a unit trust or fixed trust and the notification effectively opts the taxpayer into an assessment regime that scrutinises both the trustee (based on all of the land in a trust) and the interests of the beneficiaries/unitholders declared in the notification.
To avoid double taxation the nominated beneficiaries/unitholders receive a tax credit in respect of tax already paid by the trustee. Upon making such a notification the trustee will be assessed at the general rates of land tax rather than the trust surcharge rates. Assessments can get particularly complex when beneficiaries are companies or trustees of other trusts.
In the case of discretionary trusts (also known as family trusts), if the trust was in existence and held land at 16 October 2019 then the trustee can nominate an individual over the age of 18 to be the person in whose hands the land held by that trust is assessed. Only one person can be nominated as the designated beneficiary. If the designated beneficiary holds other land in their personal capacity or as the designated beneficiary of another trust, that land will be aggregated. So the choice of beneficiary must be carefully considered. The notification must be made by no later than midnight on 30 June 2021.
It is important for trustees to determine what category of trust (fixed, unit, discretionary or an exempt trust) they hold land in. What may be called a "unit trust" may actually be defined as a discretionary trust for the purposes of the Amending Act, in which case it will have a very different beneficiary notification requirements and tax assessment.
Land held in self-managed super funds is classed as land held in an excluded trust. This means only land of which the super fund is the sole owner will be assessed to the trustee of the super fund. Land jointly owned, or owned indirectly by the super fund owning units in a unit trust, will not be assessable to the super fund trustee. Solely held land owned by the super fund will be aggregated and assessed at the general rates rather than the surcharge rates.
This is only a brief and high level overview of the Amending Act and the changes that flow from it. Failure to provide the correct information to RevenueSA may result in higher rates of land tax being paid than necessary. Each individual taxpayer should seek professional advice about what steps they need to take to achieve the most favourable result.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.