Overview of the South Australian land tax changes


24 June 2020


From 1 July 2020 land tax laws will be modified and changes will be made to land tax thresholds, rates and calculation methods. The new regime should be carefully considered by landowners. The previous 30 June deadline for landowners to provide information in respect of landholdings to RevenueSA has now been extended to 31 July 2020.

 

Who is liable to pay land tax?

Subject to certain exemptions, the legal owner of a property as at midnight 30 June each year is liable to pay the land tax determined for the following financial year, even if the property is sold after this time.

 

How is land tax currently calculated?

Pursuant to the Land Tax Act 1936 (SA) (Land Tax Act) land tax is currently calculated by applying a progressive rate system to the total taxable value of all land owned in an ownership. An ownership is comprised of all the land owned by the same registered proprietor(s). A registered proprietor can be an individual, a group of people, a trust or a corporation.

 

The new legislation

On 28 November 2019, the South Australian Government enacted the Land Tax (Miscellaneous) Amendment Act 2019 (SA) (Amending Act) to amend the Land Tax Act. The Amending Act will come into force following the commencement of part 8 of the Statutes Amendment and Repeal (Budget Measures) Act 2018 (SA) on midnight 30 June 2020.

 

Changes will apply to land tax thresholds, rates and calculation methods.

 

Land that is exempt from land tax under the Land Tax Act will not be liable to land tax and will not be included in an assessment of land tax payable. Existing exemptions are retained under the new regime, including the principal place of residence exemption.

 

Revised thresholds and a reduction in land tax rates

Pursuant to the Amending Act, land tax thresholds at which the marginal rates apply will be substantially increased and land tax rates will be reduced.

 

From 1 July 2020:

  • the tax-free threshold will be increased from $391,000 to $450,000;

 

  • the top land tax threshold will be increased from $1,302,000 to $1,350,000; and

 

  • the top land tax rate will be reduced from 3.7% to 2.4%.

 

From 1 July 2022, the land tax thresholds will be further increased and land tax rates further reduced.

 

Aggregation

Land tax is currently calculated in respect of each ownership. From 1 July 2020, this assessment method will change and those who own land in multiple ownerships may receive more than one notice of assessment for land tax (Assessment), with ownerships to be aggregated across individual and joint ownerships.

 

Taxable land owned jointly with other people will first be assessed in the joint ownership as follows:

  • all the joint owners will be liable for the land tax payment;

 

  • if the joint ownership owns only one parcel of land, an assessment will be based on the value of that land;

 

  • if the joint ownership owns more than one parcel of land, an assessment will be based on the combined values of all taxable land owned; and

 

  • if a single parcel value or multiple parcel values fall below the land tax threshold, no Assessment will be issued.

 

A share of jointly owned land in a joint ownership will then also be combined with the values of any land owned in one’s own right and a separate Assessment will be issued. For tenants in common, a share of ownership is as specified on the relevant certificate of title. For joint tenants, it will be assumed that each tenant owns an equal share of the land to all others.

 

In order to avoid double taxation, a deduction will be made to the Assessment relating to individual ownership equivalent to the individual’s share of the land tax assessed in any joint ownership. If no liability in the joint ownership exists, then no deduction will be made to the individual ownership Assessment. Where a deduction for land owned in joint ownership is greater than the overall liability for the individual Assessment, individual liability is reduced to nothing and an individual Assessment may not be issued.

 

No changes to land tax assessment will apply to landowners (for both individual and joint ownerships) who only own taxable land in one ownership. Such owners may even see a reduction in the amount payable pursuant to the revised threshold and rate changes.

 

Those who own land in their own right (not in a joint ownership) will not have their land combined with the land of a spouse or domestic partner who similarly owns land in their own right.

 

Changes to trust arrangements

From 1 July 2020, higher land tax rates (trust land tax rates) will apply to taxable land held in the following types of trusts:

  • fixed trusts;

 

  • discretionary trusts; and

 

  • unit trusts.

 

For these trusts, where the land held in trust is valued above the trust threshold of $25,000, and a notice of beneficial interest(s)/unitholders or a designated beneficiary is not provided to the Commissioner of State Taxation (Commissioner), trust land tax rates will apply to all the land held in the trust. The trust land tax rates impose a surcharge of up to 0.5% on the general land tax rates for land valued below the top marginal threshold.

 

Where a notice of beneficial interest(s)/unitholders or a designated beneficiary is provided to the Commissioner, trust land will attract general rates as opposed to the higher trust land tax rates.  The trust land (or share of trust land) owned by the beneficiary/unitholder will be combined with their other landholdings and assessed at the general rates for their individual ownership. This assessment will be deducted from the land tax assessed in the trust ownership.

 

The following types of trusts will not be subject to the new trust land tax rates and will pay land tax at the general rates:

  • excluded trusts such as concessional trusts, superannuation trusts and administration trusts for deceased estates;

 

  • implied, constructive or resulting trusts;

 

  • public unit trust schemes; and

 

  • corporations acting as trustees that are subject to aggregation (related corporations).

 

Any land held in trust by a trustee will be placed in a separate ownership to the trustee’s personal landholdings. Furthermore, land held by a trustee for a trust will be aggregated with other land held by the same trustee for the same trust but will not be combined with other land held for a different trust by the same trustee.

 

New provisions for related corporations

From 1 July 2020, pursuant to the Amending Act, related corporations that own land are to be jointly assessed for land tax as if the land were owned by a single corporation.

 

Corporations are deemed related for land tax purposes when:

  • a corporation exercises control over another/other corporations;

 

  • control is exercised by the same person(s) over two or more corporations;

 

  • control is exercised jointly by a corporation and the corporation’s shareholders, who collectively own more than half of issued share capital; or

 

  • a corporation owns more than half of the beneficial interests/units in land subject to a fixed trust/unit trust.

 

RevenueSA has directed that land tax levied should be distributed among related corporations based on the value of each of the entities’ land holding interests.

 

In relation to trusts, where a corporation holds land as trustee of a trust (other than a trust for a contract to purchase land), the corporation as trustee will be assessed for land tax based on the value of the whole of the land of the trust and as if the land were the only land owned by the trustee. The land subject to the trust will be aggregated with other land of the same trust, but will not be aggregated with other land subject to a different trust.

           

A corporation may apply to the Commissioner to be de-grouped from related corporations and assessed as a single corporation for land tax purposes where the corporation is holding land for a residential development of more than 10 allotments. The land must be held by just one corporation as opposed to multiple related corporations. If an exemption is granted, the corporation will be assessed as a single corporation for a period determined by the Commissioner, initially based on the period of development.

 

Available relief for eligible land tax payers

The State Government is providing transitional relief to those liable for land tax who experience an increase in more than $2,500 due to the legislative changes affecting aggregation of land owned as at 16 October 2019. The relief will be based on the difference in tax payable on the relevant land between the relevant year and the 2019-2020 land tax year. Applications for the relief must be made to RevenueSA by 31 March in the relevant year. The relief does not extend to the higher trust rates for which trusts may be liable.

 

A concession is also being offered to developers of land for affordable housing. Developers who apply for this relief will not have such land aggregated with other land they own and will have it assessed and taxed separately for a 12-month period. Relief will only be granted to developers who enter into arrangements with the South Australian Housing Authority and comply with its requirements.

 

Furthermore, property owners who rent their property through a participating community housing provider to provide affordable housing to lower income earners may be eligible for land tax exemption through the State Government’s Affordable Community Housing Land Tax Exemption Pilot.

 

Notification obligations for landowners

In order to comply with the new legislation, by 31 July 2020, landowners must advise RevenueSA of the following:

  • landholding details;

 

  • any land held on trust; and

 

  • all related corporations to be included in a corporate group for land tax assessment.

 

Additionally, from 31 July 2020, trustees must notify RevenueSA within one month of changes occurring with respect to land held on trust.

 

Points to consider

As soon as possible:

  • trustees (where applicable) should consider lodging a notice of beneficial interest(s)/unitholders or providing a designated beneficiary for trusts;

 

  • corporations should consider whether they are eligible for an exemption to the grouping provisions for related corporations; and

 

  • those with interests in land and landowning entities should carefully consider how their interests are structured in light of the effects of the new legislation.

 

Contact us

If you have any queries about the new land tax changes or would like to discuss and review your arrangements, please do not hesitate to contact us.

 

 

This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.

 

 

Authors:

 

Seva Surmei, Principal in our Business Transactions Team 

Contact
Email: ssurmei@dmawlawyers.com.au
Direct Telephone: +61 8 8210 2243

 

Jacqui Ballard, Law Graduate in our Business Transactions Team 

Contact
Email: jballard@dmawlawyers.com.au
Direct Telephone: +61 8 8210 2284