March 13, 2020

South Australian Land Tax Reform

Key policy changes to the Land Tax Act 1936 come into effect from midnight 30 June 2020

Land Tax is a state tax which is levied annually based on the ownership and usage of land held as at 30 June each year. The calculation is based on the site (land) value and not the cost or value of any buildings or improvements on the land. The site value is usually set by the Valuer-General and can be obtained via a property search from South Australian Land Information system (SAILIS). Based on the aggregated site value of the property a progress tax rate is then applied. The exemptions to Land Tax that previous were in place have not changed. Therefore, the following properties are exempt from Land Tax:

  • Principal place of residence
  • Primary production
  • Charitable/Hospital land

The main changes to the Land Tax Act 1936 from midnight 30 June 2020 are:

  • Increasing the tax-free thresholds and lowering tax rates from 2020/2021 and then again from 2022/2023 onwards
  • Implementation of new aggregation principles across joint and individual ownerships
  • Application of a new trust surcharge up to 0.5% for certain trusts
  • Grouping of related corporations

RATES & THRESHOLDS

The highlighted areas above show where the rates and thresholds will change between the two periods. The tax-free threshold will increase from $391,000 to $450,000 and then to $477,000 (estimated) and the highest tax rate will be reduced from 3.70% to 2.40%

AGGREGATION

Currently each different combination of owner(s) is treated separately for land tax assessment. For example, currently an individual is assessed on the aggregated site value of properties held in their individual name and then they are assessed separately on the aggregated site value of properties held in joint names. Hence, they get access to the tax-free threshold twice as it is applied to the different ownership combinations separately.

All joint ownership arrangements will continue to be assessed on their aggregated site value separately.

Changes will be applied at the individual assessment level. Going forward individual ownership will include joint ownership and beneficiary entitlement of any trusts that hold property. To prevent double taxation, the individual will be entitled to a deduction for any tax paid on the joint ownership.

TRUST

A higher tax rate can apply to trusts that hold property. A maximum surcharge of 0.5% can apply, with the total tax rate plus surcharge being capped at 2.4%.

Trust rates will apply to land directly held in trusts unless:

  • Section 13G(5) of Land Tax Act 1936 applies (which treats the trust as a related corporation)
  • Notice of beneficiaries/ unit holdings/ designated beneficiary is in force
  • It is an excluded trust (such as a super fund/ limit recourse borrowing arrangement, charitable or deceased estate etc)

TRUST RATES

NOMINATING BENEFICIARIES

You will have the option to lodge with Revenue SA the beneficial interests/unit holdings of a trust that holds property. By lodging this nomination only the general land tax rates will apply, not the higher trust rates, and the beneficiary / unit holder will be the owner of the property for the purposes of land tax. This is an OPTIONAL measure and different arrangements apply for the following types of trusts. There may be situations where nominating the beneficial interests/ unit holdings would result in less tax to pay as it will prevent the trust paying the surcharge. But where these individuals hold other property it will be detrimental as they will be paying higher personal land tax.

Fixed & Unit Trusts – All beneficiaries/ unit holders must be nominated and you can only make the nomination once. If you choose to withdraw it later then you can never make the nomination again and will then have the higher rates apply going forward.

Discretionary Trusts – Applies to only those trusts setup prior to 16/10/2019. You can only nominate ONE natural person (beneficiary > 18 yrs) and the nomination must be made before 30 June 2021. You can only make the nomination once. If you choose to withdraw it later then you can never make the nomination again and will then have the higher rates apply going forward.

RELATED CORPORATIONS

Related corporations will be jointly assessed for land tax as if they were owned by a single corporation. They will be related if:

  • A corporation has control over another corporation (i.e. control composition of the board, can control >50% of the votes or shares)
  • The same person(s) have control over both corporations
  • Shareholders hold >50% of the shares in another corporation
  • A corporation is the corporate trustee of a fixed or unit trust where the majority beneficiaries/ unitholders of the trust is another corporation (s13G(5))

KEY DATES

16/10/2019 Cut-off date for pre-existing discretionary trusts
Late March 2020 Revenue SA Letter to corporate group nominees 
30/03/2020 RevenueSA Portal opens
Early April 2020 Landowners receive letter from RevenueSA
April – June 2020 Landowners confirm and upload data
31 July 2020 Last day to provide notice of land held in trust
October 2020 Land tax notice of assessments issued
31/03/2021 Applications for the Transition Fund closes for 20/21
30 June 2021 Last day to nominate designated beneficiary for a discretionary trust

If you don’t confirm and provide the required information to Revenue SA you may receive an incorrect assessment in due course.

To review your potential land tax liability and to assist with responding to the Revenue SA request, please don’t hesitate to contact us.