As part of the State Budget 2019-20, the Government announced amendments to the Land Tax 1936 Act, subject to the approval by Parliament.
The proposed amendments will introduce new land tax aggregation provisions to apply from 30/06/2020.
How is land tax calculated?
Currently, land tax is calculated based on the legal ownership of land. This has allowed individuals to create separate entities and ownership structures to enable land tax to be calculated on the basis of ‘single holding.’ Most commonly, the separate entities are in the form of family trusts, companies with common directors or super fund holding trusts.
In SA, the tax comes into effect if you own properties worth more than $391,000 (exemption is usually granted for your principal place of residence or land used for primary production). The percentage of tax increases as the value of properties increase.
From July 1, 2020 the minimum threshold will increase to $450,000.
The proposed change will aggregate together to ensure owners pay land tax equivalent to the value of the land, regardless of the composition of land held. These changes have the ability to increase some land tax bills significantly. For instance, a couple owning three average-value residential properties, land tax would increase from $1,100 to $21,000.
The new provisions will ‘look through’ the separate legal structures to identify the ultimate individual and be taxed as one entity.
They will also allow for 2 or more related companies to be grouped for land tax purposes.
There will be an introduction of a surcharge on land owned in trusts in cases where the interests in land of trust beneficiaries are not disclosed by taxpayers or cannot be identified.
Heavy penalties may be imposed for those who set up complex company and trust structures in an effort to disguise the ultimate ownership.
The Government also announced as part of the amendments, they will progressively reduce the top land tax rate from 1 July 2020. For the value of ownerships above $5 million, the top land tax rate will be reduced by 0.1 per cent point each year from 3.7% in 2019/20 to 2.9% from 01/07/2027.
Ultimately, the Government estimates the change will bring in $40 million each year from 2020, negating some of the revenue decrease expected from lower tax rates.