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How will changes in SA land tax affect you?

What is land tax?  It is a fee calculated on the 'unimproved' site value of each parcel of land, not the capital improved value (i.e. value of land, not the house and land).  Your home is exempt from land tax.  

The state Government have announced they would like to take measures to close existing loopholes that currently exist for owners of multiple parcels of land so that they can increase revenue received for land tax. 

 

The reforms are designed to group an owners interest in every piece of land, rather than only aggregating properties held in the same ownership structure.  For example you may own one investment property in your personal name, one in a trust etc - at present they are not grouped so smaller or nil rates of land tax may apply.  

Additionally the reform looks to introduce provisions to allow two or more related companies to be grouped for land tax purposes, and introduce a surcharge on land owned in trusts in cases where the trust beneficiaries can not be identified.

At present Land tax is calculated as follows: 

Total Taxable Site Value	Amount of Tax
Does not exceed $391 000	Nil
Exceeds $391 000  but not $716 000	$0.50 for every $100 or part of $100 above $391 000
Exceeds $716 000  but not $1 042 000	$1625.00 plus $1.65 for every $100 or part of $100 above $716 000
Exceeds $1 042 000 but not $1 302 000	$7004.00 plus $2.40 for every $100 or part of $100 above $1 042 000
Exceeds $1 302 000	$13 244.00 plus $3.70 for every $100 or part of $100 above $1 302 000

 

 

 

 

 

 

 

 

 

 

 

Under the proposed changes, the tax free threshold of land will increase to $450 000 (good news for investors with small holdings).  There will also be a reduction in the top land tax rate of $3.70 (3.7%) to $2.90 (2.9%) reduced by 1% each year until 2027-28.

So how does this all stack up? 

Example 1; You currently have 1 x investment property with a 'land value' of $350k.  Under the current rules you would not be paying any land tax.  Under the proposed aggregation rules, you still will not pay land tax.  You will not pay until the value of the land exceeds $450,000. 

Example 2; You currently have 2 x investment properties, each with a 'land value' of $300k owned in different entity names.  Under the current rules you would not be paying any land tax.  Under the proposed aggregation rules, you would pay land tax based on $600k, which would be calculated at; $0.50 for every $100 or part of $100 above $450,000 ($150,000/100 x .50c = $750). 

Example 3; You currently have 3 x investment properties, each with a 'land value' of $300k owned in different entity names.  Under the current rules you would not be paying any land tax.  Under the proposed aggregation rules, you would pay land tax based on $900k, which would be calculated at; $1625 plus $1.65 for every $100 or part of $100 above $716,000.  $1625 +($184,000/100 x $1.65 = $3036) = $4661.

Under the aggregation proposal, it pushes investors with multiple properties into different categories, thus creating more revenue.

It will be interesting to see if the changes come into effect (scheduled for 1 July 2020) as numerous property bodies are lobbying government.  We will keep you posted as we hear more.