Paying land tax is an inevitable cost of successful property investing. However, large increases in property values have caused a greater burden to property investors over recent years and became a major cost to property investment.
While you cannot avoid paying land tax, there are smart ways you can minimise it. Here are some of the ways.
5 Ways to Minimise Paying Tax on Land
1. Purchase property with another person’s name that has not reached the land tax threshold.
Each state has different land tax rules, rates, and thresholds, but it is calculated based on the sum of the value of all the taxable land a person owns in the state beyond the land tax threshold.
So, suppose you’ve owned multiple properties in a particular state and have reached the threshold. In that case, consider buying other properties in your spouse’s name. This way, you are acquiring a new threshold and reducing the overall cost of paying land tax.
2. Use a separate entity such as a fixed trust or company.
Using different entities such as a trust allows you to acquire multiple thresholds. However, it is best to seek professional tax advice because each state has different rules and thresholds, and tax rules may change when you use a separate entity and not under your name.
3. Consider when to purchase or sell your property.
It’s important to know the Date of Assessment for Land Tax in a particular state before you sell or buy a property. For example, in New South Wales, the tax date is 31st December. If you have sold the property and have not settled before this date, you may still be asked to pay the Land Tax for the following year.
So, if you’re selling your property, make sure to settle before the land tax anniversary.
4. Consider buying an apartment.
Land tax is based on the land’s value only and not the property’s value. It thereby makes sense buying properties with a relatively small land component that saves you money.
A $400,000 unit, for example, might only have a land value of $100,000, but a $400,000 house might have a land value of $300,000. So, try to check the land components of the investment to know if you have reached the threshold.
However, it’s important to consider the annual body corporate fees that would cost you if you owned the unit.
5. Buy property in several states.
Another smart way to minimise land tax is not to put all your eggs in one basket — purchase properties in different states.
If you own multiple properties in one state, you’d most likely exceed the threshold and pay more land tax. But suppose you buy properties across different states. In that case, you’re spreading the value of the properties across the different thresholds and pay less land tax.
Things to Consider
Here are two things you can do if you’re concerned about land tax:
- Check the land tax rate that applies in your state, and;
- Speak to a tax professional to know the property tax implications and how to manage property taxes in different states.
While it’s good to think long-term and on how you can save on some land tax, it’s crucial to note that land tax is not a top concern when it comes to investing in real estate.
It’s best to work out an investment strategy that is right for you because what may be good for minimising taxes may not fit your investment goals.
That being said, we can recommend top industry professionals to guide you throughout your property investment journey and help it become a success. You may also talk to us to help organise your finances for your investment property.