6 March 2020

The South Australian Government has passed into law significant amendments to the land tax measures. These will come into effect from 1st July 2020 (and relate to land held as at 30 June 2020). Moving forward this will impact how land tax is calculated and while you may currently pay little or no land tax that could change with the introduction of these new laws. Though, it is not all bad news as some taxpayers may find themselves with less land tax to pay as the top rate has reduced from 3.7% to 2.4%.

Furthermore, certain groups of land holders (i.e. land held in a trust) will have additional compliance obligations, which require lodging reports with Revenue SA by 31st July 2020.

Key Changes

• Introduction of a surcharge on land held in trusts. There will be two land tax rates operating concurrently:
  • Trust rates – additional 0.50% surcharge (site value exceeding $25,000)
  • General rates – other taxpayers including some discretionary trusts and excluded trusts – new tax-free threshold of $450,000

^Estimated thresholds reflect expected site value growth as at the 2019/2020 Budget

*Thresholds not subject to change (value fixed by Legislation in relevant year)

• • Current rate structures for 2019/2020

• • Top land tax rate reduced from 3.7% to 2.4%
• A shift to aggregation based on an owner’s interest in every piece of land, rather than only aggregating properties held in the same ownership structure;
• Related companies will now be grouped and land treated as if owned by a single corporation;
• New reporting requirements for trustees including notifying the Commissioner for:
  • All existing holdings
  • All new acquisitions and disposals of land
  • Any change in the category of the trust
  • Change in beneficial interest in fixed and unit trusts
  • Completion of administration estate
• Ex gratia relief provided to eligible individuals

Treatment of land held in various structures

There is no disputing these land tax changes will impact all land holders. While most taxpayers will not be affected greatly; it will be those who hold multiple land holdings in different structures (jointly held, trusts and companies) that will be affected the most. The Government aims to “look-through” these structures, where in the past, the land holdings were taxed separately where owned in multiple entities.
For land held in Trusts, the rules will differ for discretionary and unit trusts and where decision making is required which will ultimately impact the end result:

• • • Unit Trust – Trustee of Unit Trusts will need to engage with their unit holders and decide whether to do nothing and be subject to the higher trust surcharge rates or whether to notify the Commissioner and be subject to the general rates where all unit holders will be taxed in proportion to their respective interest.
    • Discretionary Trusts – similarly, land held in trusts will be subject to the higher trust rates unless they able to nominate a beneficiary as the “owner” for land tax purposes, where they will be assessed at the general rates.

If you are a Trustee holding land in a trust, and able to nominate a beneficiary, the Government has extended the deadline to 30 June 2021. This is a once-off opportunity for land held by the trustee before 16th October 2019. The beneficiary will receive a land tax assessment, but will receive a credit for any tax paid by the trust. There are additional conditions and considerations to this nomination, however this is an important issue for review to assist in managing your land tax obligations.

Ex Gratia Relief

Taxpayers who will be worse off with the new land tax measures may have access to concessions to alleviate the increase. To be eligible, the increase in your land tax bill must be above $2,500 when compared to the old rates for 2019/2020. Although the Government has set up a compensation scheme for $25m, this is a temporary relief which will be available for up to three years. Furthermore, the amount of funds the Government has set aside for this means that eligible taxpayers may miss out once those funds have been exhausted.

Concluding Remarks

The new land tax changes to come into force 1st July 2020 are lengthy and complicated. The Government have introduced new aggregation rules shifting away from aggregating properties held within the same ownership structure to aggregating based on an owner’s interest and will group related companies. There will be two land tax rates, the higher of which most trusts will be subject to unless they nominate a beneficiary. Furthermore, trustees will have additional reporting obligations. Eligible taxpayers who are hit with a higher land tax payable than they are used to previously, may have access to concessions to help alleviate the pain.
The new laws provide an opportunity for landholders to review their structures and to consider the impact these changes will have. We encourage all land owners to fully discuss their circumstances with their accountant to be able to make the most tax-effective choices.

Disclaimer

All information provided in this article is of a general nature only and is not personal financial or investment advice. Also, changes in legislation may occur frequently.
We recommend that our formal advice be obtained before acting on the basis of this information

12 February 2020

Wondering if you’re eligible to claim the CGT concessions can be settled by answering a few basic questions.

In addition to the capital gains tax (CGT) exemptions and rollovers available more widely, there are four additional concessions that allow a small business to disregard or defer some or all of a capital gain from an active asset used in the business:

• 50% active asset reduction – where you can reduce the capital gain on an active asset by 50% (in addition to the general 50% discount if you’ve owned it for 12 months or more, except for companies).
• Retirement exemption – capital gains from the sale of active assets are exempt up to a lifetime limit of $500,000. If you’re under 55, the exempt amount must be paid into a complying super fund or a retirement savings account.
• 15-year exemption – if your business has continuously owned an active asset for 15 years and you’re aged 55 or over and are retiring or permanently incapacitated, you won’t have an assessable capital gain when you sell the asset.
•  Rollover – if you sell an “active” asset, you can defer all or part of a capital gain for two years, or for longer if you acquire a replacement asset or incur expenditure on making capital improvements to an existing asset.

Continue reading “CGT concessions: Does your business qualify?” →

7 January 2020

It can sometimes be the case that spouses can have different main residences at the same time. When this occurs, special CGT rules apply to in effect provide only one CGT main residence exemption over this period. However, important decisions and choices may need to be made to optimise the tax outcome in this case (or avoid an adverse outcome).

While in most cases spouses will have a single main residence in which they live together, there may be times when they are separated, for example due to work commitments, where they have two different main residences over the same period.

Continue reading “CGT when spouses have different main residences” →

10 December 2019

Employers know that popping a champagne cork or two to celebrate the festive season lets staff know their efforts are appreciated, but the well-prepared business owner will also know that a little tax planning can help ensure that it’s not the business that ends up with the FBT hangover.

Three benefits generally provided for the festive season, rather than gold, frankincense and myrrh, typically include:

• entertainment (that is, a Christmas party)
• gifts to employees, (and even their family), and
• cash bonuses.

Continue reading “Three wise FBT tips for Christmas” →

9 December 2019

Inheriting a home or a legal interest in one could be the largest windfall gain that many Australians ever experience. From a tax law perspective, when someone dies a capital gain or loss does not apply when a property passes:

•  to the deceased person’s beneficiary
• to the deceased person’s executor or other legal personal representative (LPR), or
• from the deceased’s LPR to a beneficiary.

While generally no CGT applies when assets are distributed to beneficiaries, there may be CGT implications when the executor or beneficiary sells the inherited asset to a third party.

Selling an inherited property
There are different factors that influence whether CGT will apply, including whether the asset was a pre-CGT asset or not. Assets acquired before 20 September 1985 (when CGT was introduced) are considered pre-CGT assets.

Continue reading “CGT exemption on inherited homes” →

25 November 2019

The ATO is reminding rental property owners that each year it sees some fairly common mistakes being made with tax claims, and the outcomes that result, in regard to investment properties. It has therefore released a list of the top 10 stumbles, and how best to avoid them.

Continue reading “Rental property owners: Top 10 tips to avoid common tax mistakes” →

12 November 2019

There can be varied sources for some of the myths about tax deductions —pub-talk, BBQ-banter, hairdresser-homilies, what-your-taxi-driver-just-heard and many others. We sort out fact from fiction.

This year’s tax time saw media reports about various outlandish tax claims — for example the ATO being faced with claims for dental expenses, gambling losses, Lego sets, sunscreen (and an umbrella) for cigarette breaks, and even the cost of a wedding reception (all rejected, by the way).

How certain myths are started about what can or can’t be claimed on tax is anyone’s guess, but it is these snippets of misinformation about allowable tax deductions that can lead unaware taxpayers to make incorrect claims — and get the taxman’s attention.

Here are some of the most common:

Fiction: Everyone can automatically claim $150 for clothing and laundry, 5,000km under the cents per kilometre method for car expenses, or $300 for work-related expenses, even if they didn’t spend the money.

Fact: There is no such thing as an “automatic” or “standard deduction”. Substantiation exceptions provide relief from the need to keep receipts in certain circumstances. While you don’t need receipts for claims under $300 for work-related expenses, $150 for laundry expenses (note: this is for laundry expenses only and does not include clothing expenses) or if you are claiming 5,000km or less for car expenses under the cents per kilometre method, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim.

Continue reading “Fictions (and facts) about work expense deductions” →