The South Australian budget contained a nasty surprise for property investors who hold multiple properties under different ownerships or family trusts with a change to how land tax is calculated.
Currently properties owned under individual or joint names are treated as different owners for land tax purposes meaning that both the individual and the joint owner have the benefit of their own tax free threshold and lower tax rates. This produces a significant saving for owners of multiple properties who structure their holdings under different names.
Under the proposed changes, for which the exact details are yet to be announced, the value of a persons property holdings will be calculated based on aggregating their ownership across all entities. For many multiple property owners this will result in a significant tax increase. The other proposed change is likely to mean that family trusts will not have access to a tax free threshold. These changes will make South Australia's calculation method similar to Victoria and New South Wales.
A land tax cut was also announced to the top land tax rate which will reduce the rate on properties valued between $1,302,000 and $5,000,000 from 3.7% to 2.9% from 2021 and to reduce the rate applicable to land valued above $5 million by 0.1 percent per year over the next eight years from 3.7% to 2.9%. The tax free threshold will also be increased to $450,000. These decreases will not come close to offsetting the impact of aggregation for many multiple landowners.
Below is an example of what the changes might mean: