Written By Jacob Henson:
The 2019/2020 South Australian Budget has been announced and Treasurer Rob Lucas has proposed several changes to the Land Tax legislation. The most significant of these changes will see the State Government oversee more rigorous land tax aggregation provisions.
The current land tax legislation in South Australia is largely based on the legal ownership of land, which due to the accumulating nature of the land tax legislation, has in some cases eventuated in the development of complex ownership structures designed to avoid or minimize land tax payable. The proposal is set to introduce sweeping aggregation measures that seek to “look through” legal structures to identify one or more ultimate owners or controllers of the land. These provisions have been designed to target clients who have multiple land holdings with split ownership and multiple entity structures as an effective method of minimising tax. Similar models have been implemented in Victoria and New South Wales.
Under the current proposal, new provisions will include:
- A shift to aggregating based on an owner’s interest in every piece of land, rather than only aggregating properties held in the same ownership structure;
- Introducing provisions to allow two or more related companies to be grouped for land tax purposes, and
- Introducing a surcharge on land owned in trusts in cases where the interests in land of trust beneficiaries aren’t disclosed or can’t be identified. This is designed to minimize the incentive to own properties in trusts to avoid aggregation by increasing the tax payable.
The table below details multiple land holdings under separate ownership structures and the land tax that is currently payable under the current provisions:
With the legislation currently in place, total land tax payable on the single holdings in the table above is $13,744. Under the new ‘look through’ provisions, the land tax payable is likely to increase to $38,272.50.
As you can see, there is little doubt that these are significant changes, which will have significant tax implications for some clients. Especially multiple land holders and in particular those that use either company or trust structures.
However, it also is important to note that there will be a substantial public consultation process, prior to the proposed changes becoming legislation and any changes to the legislation won’t commence until the 1st July 2020. Ensuring that there is ample time to explore alternate structuring options.