The Land Tax Act 2010 was introduced last year. It will potentially increase the land tax that some owners have to pay even if valuations have decreased! Anyone who has more than one investment property should take care to examine the manner in which their investments are held.
The section of the Act to look out for is Section 20.
Accountants and advisors will sometimes recommend to property investors that they consider holding each investment property in a different trust. One reason for having more than one trust is so that any negative events which affect one investment property do not spill over and produce a negative impact on another property. There are also other reasons why a family may operate more than one trust, including for estate planning. Essentially each property has a distinct and different owner. Although separate trusts may be set up all family members are often listed as potential beneficiaries of each of these trusts.
Section 20 provides that if a trustee, is the trustee of more than one trust and the beneficiaries of each trust, are also the same beneficiaries then land tax is not separately assessed against each property. The value of the properties is combined.
For an investor who owns two properties each valued at $340,000.00 this means potentially paying $7060.00 land tax.
If section 20 did not apply there would be no land tax to pay, as each property valued separately at $340,000.00, falls under the threshold.
The changes that need to be made to avoid paying land tax in this situation are relatively simple and very inexpensive. The most obvious solution may be to appoint a new trustee to one or more of the trusts.
Please contact J J Riba & Co on (07) 54791488 with any questions.