SA Treasury has released the draft consultation bill on the proposed land tax ‘aggregation’ measures to apply from 1 July 2020.

What you need to know: 

  • Top marginal rate reduced from 3.7% to 2.4% immediately from 1 July 2020.
  • Trusts subject to an additional 0.5% surcharge on property values up to $1.1m.
  • Election for trusts to nominate beneficiaries (including transitional election for discretionary trusts) to avoid the surcharge.
  • Property held in related companies to be aggregated in calculating tax.
  • Aggregation of direct interests and nominated indirect interests for other entities.
  • Joint owners taxed at property level and owner level with ‘credit’ for tax paid at property level.
  • Superannuation Funds excluded from trust surcharge.

Those most impacted:

  • people with multiple low value holdings (<450k) held in trust 
  • people with multiple direct holdings which are nor currently aggregated; and
  • company groups

Changes Explained

What are the new tax rates?

The land tax rate schedules will be revised as follows:

Threshold                 

General rate                       

Trust surcharge rate

$ 25,000

Nil

Nil

$ 450,000

Nil

0.50% up to threshold

$ 756,000

0.50% up to threshold

1.00% up to threshold

$1,100,000

1.65% up to threshold

2.15% up to threshold

>$1,100,000

2.40% over threshold

2.40% over threshold


This compares to the current rates:

Threshold                 

General rate

$ 391,000

Nil

$ 716,000

0.50% up to threshold

$ 1,042,000

1.65% up to threshold

$1,302,000

2.40% up to threshold

>$1,302,000

3.70% over threshold

How are you affected?

The proposed changes will impact different property holdings in different ways.

Direct property holdings (more than one owner):

Land tax is applied to the property at general rates. Land tax is also assessed to the owners in their ownership proportion. This is aggregated with other property holdings of the owner. A non-refundable credit is available for the share of land tax paid at the property level.

Individual owner:

The individual owner will have their proportionate interests in properties aggregated and taxed at general rates. Interests held in trusts will only be aggregated where the trustee nominates the individual as a beneficiary. The individual will receive a non-refundable credit for taxes paid at property or trust level.

Unit trust or Fixed Trust Holdings:

Land tax is applied to the property held by the trust (including the trust proportionate interest in other nominated property interests) at a rate which includes a 0.5% surcharge up to the top marginal rate (which remains at 2.4%).  

The trustee can elect to nominate the beneficiaries of the trust. If this happens, the trust will not be subject to the surcharge. Each beneficiary will include their share of the property in their own aggregated land tax assessment. They will get a non-refundable credit for the tax paid by the trust.  

Discretionary Trust:

Land tax is applied to the property held by the trust (including proportionate interests in other property) at a rate which includes a 0.5% surcharge up to the top marginal rate (which remains at 2.4%).

The trustee can elect to nominate a beneficiary of the trust to be the land tax ‘owner’ of the trust. This nomination must be made before 30 June 2020 and only applies to property held at the time the bill goes into Parliament. This beneficiary will include their share of the transitional property in their own aggregated land tax assessment. They will get a non-refundable credit for the tax paid by the trustee.  

Companies:

Property held in related companies will be aggregated together and land tax applied on the aggregated value.

Companies are generally related where there is a common greater than 50% shareholding between the companies.

Companies holding property as trustee will be taxed as trusts at the trust surcharge rate (or with nomination mechanism where available). 

Superannuation Funds:

Superannuation Funds are excluded from the trust surcharge rules and taxed at normal rates and thresholds. Property held by the Fund will be aggregated with other Fund property.  

Each Limited Recourse Borrowing Arrangement (LRBA) Trust will be treated as a separate excluded trust and taxed at a normal rate (with tax-free threshold).  

Other excluded trusts:

Certain other trusts will be excluded from the trust surcharge arrangements. This includes:

•  Public Unit Trust arrangements – listed trusts or greater than 50 members;

•  Charitable Trusts; and

•  Guardianship or disability trusts.  

Principal Place of Residence

There are also changes to the way that the Principal Place of Residence exemption interacts with trust holdings. 


Have any questions on where these potential changes leave you? Talk to us today to discuss how these changes could impact you.