09 Apr Land Tax and the facts – Ian Rodrigues
We set out to clear the confusion around land tax with the expert help of Ian Rodrigues but quickly find we can’t do it in 5 to 7 minutes. We do have a solution though. You hear about it in the show as we answer the question we received from Cathy.
Kevin: We’re going to answer a question that came in from Cathy. It’s a very complex question; we’ll unpack it as best we can. To help us with that, Ian Rodrigues joins me from Bishop Collins.
Ian, this is to do with land tax, and we’ll talk about how we’re going to talk about this after I detail the question. Firstly, hello and welcome to the show, Ian.
Ian: Always good to be here, Kevin.
Kevin: This is the first time we spoke in 2018, so it’s nice to have you back in the show, and I appreciate your excellent input into this.
The question from Cathy is “Is it true regarding no land tax payable if three parties own a property in different name combinations?” It goes into a lot more detail, which we’ll probably talk about as we get into it, but let’s talk about land tax.
Where do most people get confused, Ian?
Ian: I think land tax is one of those ones that people get completely confused on every part of it. To cover off for listeners to understand how it works is a bit of a process you need to go through. But the fundamental point people need to understand is land tax is a state tax. So, it’s not like income tax, capital gains tax, or GST; it is applied by each state.
And of course, every state does it quite differently. They all have different rates and thresholds and exemptions and all those things. But at least it’s pretty clear in which state your property lies, I would think.
Kevin: On your website, would you accommodate for this as well if we wanted to know state by state. If I had a question about land tax in a particular state, if I went to your website, is there some help there for me?
Ian: Probably not, but the best website to go to is the relevant Office of State Revenue in the state. They all have excellent websites, and they have excellent fact sheets and examples. And if you’re that way inclined, you can certainly read through and get an understanding of how it works, which I recommend for all property owners, rather than just handing it to your accountant or advisor and let them work it out, because there are opportunities to minimize land tax by owning properties in different states.
So, the first point was the fact that it is state-based. All the rates, taxes, thresholds and exemptions are very different. Of course, people need to understand you don’t pay land tax generally on your principal place of residence. And the definition of that is very closely aligned to the capital gains tax exemption as well. So, that’s the good news.
Kevin: The bad news?
Ian: The bad news is that there are a lot of exemptions that apply to farming land and things like that, but for most investment property, land tax applies.
The next point people stumble across is the fact that land tax applies to the land value, not the market value of the property.
In New South Wales at the moment, the threshold – if I can read the website correctly – is $629,000 of land value. If you have a property worth $629,000 that has a building on it, it is highly unlikely you’re over the threshold. So, people need to understand that it’s on the unimproved land value, which is assessed by the Valuer General, generally every three years. But you get that on a notice.
My tip for most of your listeners is if you own property that may be subject to land tax one day, register for land tax. You may get a zero assessment every year because you’re under the threshold, but when you finally do go over the threshold, you’ll automatically get your notice of assessment and be told what you owe.
The trap for people is that they forget about it, they’re unaware of it, and when you go to sell the property… This is what I guess the government loves about land tax: you cannot escape this. Because if you go to sell a property, you have to get a thing called a land tax clearance certificate saying that the land tax has been paid. So, if you haven’t paid it for ten years, you’re going to be paying it.
Kevin: What about a couple who own a couple of properties pre-marriage, then they get married? How is the land tax calculated in a situation like that?
Ian: The simple act of being married doesn’t change. If mom owned a property and dad owned a property, if they’re both under the threshold, they’re still both under the threshold.
This is where it is very confusing, so I’ll try my best here. Land tax is assessed on properties that you own jointly as a group. So, if mom and dad owned an investment property together, they’re assessed on the one threshold together.
Every property that you own jointly with other people is assessed jointly, and then you’re also assessed individually. So, if you own another investment property in a 50% share with mom, you’re assessed on your 100% property land value and the 50% land value on the other one, which are added together to see if you’re over the threshold.
I think that explains it well, but it just confuses a lot of people, and your questioner here has all sorts of issues.
Kevin: Cathy, it’s very hard for us to answer this so succinctly. What we are going to do – I’ve spoken to Ian about this off air – we’re going to put together a special program that will dig into this. I think it’s about six parts we’d need to put it into, Ian. I’ll record that with Ian. That’ll explain this in great detail and answer all your questions. So, watch out for that. I’ll record it with Ian, then we’ll let you know how it’s available. And to subscribers to our show, you’ll get that as a free download.
Ian, thank you for helping this question with Cathy and also for the offer to do that special program. I think it’s going to be very valuable for all of us.
Ian: Yes. I have found over many years that land tax is probably one of the most misunderstood and confused taxes. When people understand it… I hate to say this and I know I haven’t met too many people who like paying land tax, I don’t know many people who like paying tax full stop, but land tax seems to cause the most – I don’t know – pain factor.
Ian: Yes. And it’s a very direct tax. You have to write a check for it. A lot of other taxes – GST and income tax – are taken out before you see it. So, it’s very visible, but when people understand how it works, it’s actually one of the most equitable and efficient taxes we should have.
But your listeners are going to have to hang with me to understand why I say that, otherwise I’ll just get hate mail now.
Kevin: We’ll put it all together for you. Watch out for it. We’ll let you know through the shows how you can actually get that free download.
Ian Rodrigues from Bishop Collins has been my guest. And Cathy, good news for you, because you’ve given us such a difficult question – and we’ve answered it the best way we could – we’re going to give you a 12-month subscription to Your Investment Property magazine for your efforts and for your question. So, thank you for that. I’ll be in touch tell you how you can get a hold of it.
Ian, thank you very much for your time.
Ian: My pleasure, Kevin. Talk soon.