Proposed Changes to Land Tax in South Australia

The 2019-2020 budget delivered by the Marshall Government proposes to change the aggregation principles under which land is taxed. At present, land is taxed based on its legal ownership. The legal entity pays tax on the combined value of all the land it owns, not on each individual property. A person who owns a single land holding pays tax on that single land holding. However, a person who owns multiple land holdings pays tax on the cumulative value of those land holdings. To avoid this, a person with interests in multiple land holdings could establish other legal entities to each own a single land holding. That way, the land is taxed as individual holdings and not cumulatively as multiple holdings.

Proposed Changes

The Government’s proposed changes would see land taxed not according to the legal entity that owns it, but according to the true owner who controls the land through various legal entities. Where the land is owned in trusts and its beneficiaries cannot be identified or are not disclosed, a surcharge will be placed on the land. Two or more related companies who own land may also be grouped together to be taxed on the land they own.

Little is provided as to how the proposed changes would actually operate. The budget does however, indicate that it intends to adopt an approach similar to those in Victoria and New South Wales. To that end, it is fruitful to examine the approaches taken in those jurisdictions.

The Victorian and New South Wales Approach

Trusts

Where land is held in trusts, trustees of most common trust structures (i.e. fixed, discretionary or unit trusts) are charged a higher surcharge rate of tax, as opposed to the general rate of tax. The exception to this occurs for trustees of fixed or unit trusts who disclose of the trust’s beneficiaries or unit holders. In that case, the trustee is charged only the general rate of tax on the land and each beneficiary or unit holder is assessed proportionate to their interest in the land holding trust.

Companies

In Victoria and New South Wales, two or more related land holding companies are grouped together and the land holdings of all companies are taxed cumulatively. Companies are considered to be related where a person or group of persons:

• holds greater than 50% of the issued share capital of each company;
• controls the composition of the board of directors of each company; or
• is able to cast, or control the casting of more than 50% of the maximum number of votes that might be cast at a general meeting.

Notable differences

The first difference worth noting is that the highest tax rates on land in both Victoria and New South Wales are lower than in South Australia. The higher tax brackets also operate at much lower thresholds.

The second difference that would make an impact is that South Australia is currently facing a program by the Valuer-General to revalue all property in South Australia. It is likely that this would see a significant increase in land values. This in turn has the potential to increase the impact of the changes.

The team at Straits Lawyers continues to maintain a close eye on any further announcements the Marshall Government has. If you are concerned about the potential impact of the changes on you, email Straits Lawyers at info@straitslawyers.com or call us at 08 8410 9069.

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.