LSB September 2019_Web

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PROPERTY LAW DISCRETIONARY TRUSTS VICTORIA NEW SOUTH WALES SOUTH AUSTRALIA HOW IS THE TRUSTEE OF A DISCRETIONARY TRUST ASSESSED? • Trustees of discretionary trusts are subject to higher rates of land tax, being the surcharge rate. • As per Victoria. • Likely to be same as VIC and NSW. CAN THE HIGHER SURCHARGE RATE BE REDUCED TO A GENERAL RATE IF A NOMINATED BENEFICIARY IS IDENTIFIED FOR THE TRUST? • At the time of introducing the land tax reforms (1 July 2005), trustees of discretionary trusts were afforded a period of 6 months to nominate a specified beneficiary for land held by the trust. • Where so nominated, the trustee is assessed at general rates only. • That nominated beneficiary is deemed to be the owner of the land, and that trust land is added to the beneficiary’s other land holdings for a grouped assessment. • There is no scope to nominate a beneficiary as recipient of the land tax assessment for discretionary trusts in NSW. • All discretionary trusts in NSW will be assessed at the surcharge rates. • It is unknown but likely that S.A legislation will afford discretionary trusts a similar period to VIC to nominate a beneficiary and avoid surcharge rates. IS THE NOMINATED BENEFICIARY ENTITLED TO A REDUCTION? WHAT ABOUT FUTURE LAND ACQUIRED BY A TRUST (NEW OR EXISTING)? • To avoid double taxation, the nominated beneficiary may qualify for a reduction of their land tax liability to the extent land tax is paid by the trustee of the trust. • However, if the beneficiary’s land tax assessment is greater than the portion paid by the trustee, the beneficiary will remain liable to pay the balance. • Any land acquired by a trust after the 6-month period (1 January 2006) cannot nominate a beneficiary and will be subject to surcharge duty. • This includes land acquired after 1 January 2006 by a trust which has a nominated beneficiary prior to 1 January 2006. • Commissioner may permit a beneficiary nominated after 1 January 2006 if such nomination replaces a prior beneficiary who has either died or otherwise revoked their nomination. The Commissioner has discretion to determine if a subsequent nomination is just and reasonable. • N/A. • S.A likely to match that of VIC. • Surcharge rates apply. • S.A likely to match that of VIC. LAND TAX RATES VICTORIA NEW SOUTH WALES SOUTH AUSTRALIA WHAT IS THE TOP MARGINAL LAND TAX RATE? • 2.25% plus a fixed charge of $24,975, being for land holdings above $3,000,000. • 2%, being for land holdings above $3,846,000. • 3.7% (at present), being for land holdings above $5,000,000. • Note: It is proposed that top marginal rate may reduce by 0.1% annually from FY2021 onwards until it reaches 2.9% from 1 July 2027. WHAT IS THE SURCHARGE RATE PAYABLE FOR CERTAIN TRUSTS? • Trusts pay the general rate applicable for their land holding, PLUS a surcharge rate. • The surcharge rate is a higher fixed charge plus an additional 0.375% up to $1.8m. • The surcharge begins to phase out from $1.8m, and from $3m it is the same as the general rate (which is a fixed charge plus 2.15%). • It is simply a 1.6% flat rate up to the premium land tax threshold of $3,846,000. • 2% for land value thereafter. • It is difficult to predict whether they will propose a flat surcharge rate (as per NSW) or an additional surcharge rate above the general rate (as per VIC). COMPARISON OF ANNUAL LAND TAX PAYABLE, BASED ON A COMBINED LAND HOLDING OF SAY $5,000,000. • $69,975 (noting at this level land tax is same regardless if trust or otherwise). • $72,104 (assuming no surcharge). • $84,616 (assuming surcharge for trusts). • $150,070 (based on current rates and excluding surcharge rates). • Note: land tax rates for holdings valued $1.3m to $5m will reduce from 3.7% to 2.9% from 1 July 2020. Estimate of land tax payable will drop to $120,544 (again excluding surcharge rates). 28 THE BULLETIN September 2019
PROPERTY LAW are likely to be like those reforms previously introduced in New South Wales and Victoria (Victoria being the first State to introduce land tax aggregation laws). ANALYSIS OF THE PROPOSED FRAMEWORK Below is a comparison between the relevant aggregation land tax laws of New South Wales and Victoria, and the writer’s impression on what may be introduced in South Australia. IMPACT OF THE FRAMEWORK AND CONSIDERATIONS As illustrated above, assuming the State Government does not introduce additional surcharge land tax for land values of say $5 million, the land tax payable by a South Australian landowner from 1 July 2020 will be some $35,928 and $50,569 higher than the equivalent landowner in Victoria or NSW respectively. These calculations already factor in the approved reduction that commences from 1 July 2020, whereas now the difference is much higher, being some $65,454 to $80,454. The existing framework and significantly higher land tax payable by South Australian landowners explains why many have strived to separate their landholdings as separate assessments where possible. With a national average top marginal land tax rate of 1.92% across all States and Territories (excluding NT which has none), our current top rate of 3.7% provides a significant issue for the State Government and landowners to overcome. Needless to say, the proposed reduction to 2.9% by 2027 is not likely to be enough. Of further importance is the State’s current “Revaluation Initiative” whereby the Valuer-General has been provided with funding and mandate to comprehensively review the market value of all land in SA for rating purposes. The first cycle of this revaluation commenced in FY2020 across three Council areas (Walkerville, Unley and Adelaide Plains) and will continue to expand into other Council areas over the coming 1-2 years. This revaluation towards market rates presents its own issue for landowners, as it will doubtless lead to higher valuations and rate assessments as well as disputes around true market values. The proposed land tax aggregation laws overlapping with this revaluation initiative presents further challenges and costs for landowners to grasp. PASSING THE LEGISLATION To effect the proposed changes, the State Government will make amendments to the Land Tax Act 1936 (Act), which if passed, will come into effect on 1 July 2020. There is no draft legislation in circulation yet. It has been said that the draft legislation is likely to be circulated at some point in September 2019, and that it will be provided to key industry stakeholders for comment. There is no indication of how long this consultation period may be or when the Bill is expected to be introduced to Parliament. The measures are not universally popular even within the State Government MPs. The Parliamentary Opposition has not taken an official position to support or oppose the proposed land tax aggregation measures. CONCLUDING COMMENTS For the time being, it is clear that the proposed land tax aggregation measures present significant concern to the South Australian real estate industry. B MEMBERS ON THE MOVE Grope Hamilton Lawyers have appointed Tiffany Irving as a solicitor practising principally in commercial litigation. Grope Hamilton Lawyers’ managing partner, Mark Hamilton, said: “Tiffany will be assisting the firm’s partners, but will play a special role assisting the firm’s property and construction disputes partner, Rino Marrone, with his practice.” Grope Hamilton has also appointed law graduate, Jim Coffey, as a paralegal assisting partner, Tony Kerin, with his civil litigation practice. Jim is shortly to be admitted as a solicitor in South Australia. Sam Ure has recently taken a room in Hanson Chambers for six months TIFFANY IRVING JAMES COFFEY whilst Anna Wells is on maternity leave. Sam is a barrister of 10 years call at the Victorian Bar and returned to South Australia in early 2019. Sam practises in commercial litigation, tax and administrative law. Sam can be contacted at Hanson Chambers on 8212 6022 or by email on ure@hansonchambers.com.au September 2019 THE BULLETIN 29
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