Land tax is an absolute killer when it comes to investment properties.
But, sometimes it does not need to be quite as much of an annoyance. If you structure your investments effectively, you could end up saving on land tax in the long run.
A couple of years ago, one of my clients, a small business owner, decided that they need to set up a new trust before the purchase of their first investment property. This would protect the investment property from their business and keep it totally separate. A smart idea.
This particular small business owner was looking at buying an investment property with a land value of $600,000 in Victoria. That means they would be paying land tax of $2,983.
Fast forward about a year or two, and they decided that they wanted to buy a second investment property. They were looking at getting this new property in Victoria as well.
With this second property, their land tax bill in that trust has jumped to $8,788… a fairly substantial amount of money.
What if they had seen us first?
If they had come and spoken to Paris Financial before buying that second property, we probably would have advised (or at least discussed) the potential to set up a second trust to save some of that land tax.
If they had set up a second trust for their second investment property, they could have saved thousands.
Let’s assume that the second property had $600,000 worth of land value. In this case, they would have saved themselves $2,822 in land tax.
The other thing they could have done to save some land tax, is to consider purchasing their second property in a different state. When investors choose to do this, they adhere to the separate tax thresholds of each state, even though they might buy it in the same trust.
Unfortunately, many investors around Australia forget to seek advice from a trusted property tax accountant before their property purchases.
It is very important to get advice before you make decisions on how you are going to structure the ownership of your next investment property purchase. Your accountant can ultimately save you thousands in tax.