Proposed changes to SA Land Tax

Overview:

In handing down the South Australian State Budget for 2019, Treasurer Rob Lucas announced several changes to Land Tax. This can raise questions to those who have multiple land holdings and split ownership with an entity structure as an effective method of minimising tax.

The biggest shift

The most significant of these changes will see the State Government apply more rigorous land tax aggregation provisions, which is set to have an impact on clients who are landowners and who hold land within entities.

In general terms, land tax in SA has always applied to the owner of the land – the owner usually being the registered title owner – with tax calculated on aggregated value of all land holdings. For example, if a client were to own three properties valued as follows – property A ($2 million), property B ($2.4 million) and property C ($3.6 million) – your tax liability would be calculated using the aggregated value of those three properties ($8 million).

For many years, utilising an entity structure to effectively split multiple land holdings into separate owners has been an accepted and effective land tax minimisation strategy.

However, the Treasurer has announced the following initiatives as part of the 2019 State Budget:

• Land held in a trust structure will incur a surcharge or higher rates, as is done in other jurisdictions, but only where the beneficiaries are not disclosed;
• A look-through approach to companies to determine the true economic owners of the land;
• A shift to aggregating a specific owner’s interest in each and every parcel they own, rather than aggregating 100% of all land held in identical ownership structures; and
• Aggregating land held by related companies.

No need to panic, there’s still time

There is no doubt these are significant changes that will have tax implications for those clients who hold land and in particular those that use either a company or trust structure. However, it is important to also note that there is a substantial public consultation process still to be prior to the proposed changes becoming legislation.

Importantly, any changes to the legislation will only commence from 1 July 2020, ensuring that there is ample time to explore alternate structuring options once the direction of RevenueSA becomes clear.

Top marginal tax rates for land holdings over $5 million

A second more minor change to land tax legislation will see a change to the top marginal land tax rate, which applies to land holdings valued at more than $5 million. The change will see the tax rate progressively reduced by 0.1 percentage point each year from 3.7% in 2019-20 to 2.9% from 1 July 2027, as outlined in the table below.

We understand that the new land tax legislation may raise questions and we encourage you to reach out to the Perks Tax Consulting team who will be able to assist in answering your questions and consider potential restructuring options for you once the scope of these tax changes becomes clearer.

Get in touch with Neil or Lee in Perks Tax Consulting Team:

Neil Oakes, Director – 08 8273 9320 NOakes@perks.com.au

Lee Jurga, Senior Tax Specialist – 08 8273 9248 LJurga@perks.com.au

The South Australian State Budget 2019/20 at a glance