How To Minimise Your Land Tax?

How To Minimise Your Land Tax new

Owning property can be a great investment, but it also comes with responsibilities like paying land tax.

If you’re a property owner in Australia, you might be looking for ways to reduce this expense.

While it’s a necessary contribution to government revenue, there are ways to strategically minimise your land tax burden and keep more money in your pocket.

In this blog, we will share simple and effective strategies to help you minimise your land tax.

Understanding Land Tax - Why Does It Matter?

Land tax is an annual state government tax levied on the owners of certain properties. Unlike income tax, it’s based on the value of the land you own, not the income it generates. 

This can be a concern for investors with multiple properties, as each one adds to their overall land tax bill.

How To Minimise Your Land Tax?

While you can’t avoid land tax entirely, there are several strategies you can consider to reduce your overall liability.

Here are some key tactics to explore:

Negative Gearing

One of the most widely used strategies for property investors is negative gearing. This approach involves offsetting the costs of owning a rental property against your taxable income.

If the expenses associated with the property (such as interest on the loan, maintenance costs, and depreciation) exceed the rental income, the resulting net loss can be deducted from your taxable income, potentially reducing your overall tax liability and pushing you into a lower tax bracket.

Claiming Deductions

The Australian Tax Office (ATO) allows property investors to claim deductions for a range of expenses related to their investment properties. By carefully tracking and claiming these deductions, you can significantly reduce your taxable income and, consequently, your land tax obligations.

Here are some common deductible expenses:

Expense Category Examples
Interest Costs Interest paid on your property loan
Property Charges Council rates, water charges, land tax itself
Property Management Property agent’s fees, advertising for tenants
Repairs and Maintenance Costs incurred for repairs and upkeep

Depreciation Beliefs

As properties age, their assets (such as buildings, fixtures, and fittings) naturally depreciate in value. The ATO recognises this decrease and allows investors to claim a depreciation tax deduction. This deduction can be substantial and contribute significantly to reducing your taxable income over several years.

To claim depreciation, you’ll need a tax depreciation schedule prepared by a qualified quantity surveyor. This report details all the depreciating assets within your property and the amount you can claim for each over their effective life.

The two main categories of depreciation deductions are:

  1. Capital Works Deductions: These relate to the building’s structure and permanent fixtures, which can be claimed over a 40-year period for residential properties built after 1985.
  2. Plant and Equipment Deductions: These cover removable or mechanical assets within the property, such as curtains, carpets, air conditioners, and hot water systems. Each asset has a different lifespan over which its value can be depreciated.

Reducing Capital Gains Tax (CGT)

When you sell your investment property, you may be liable for CGT on the profit you make.

However, there are strategies to minimise this tax:

  1. The 12-Month Holding Period Discount: If you hold onto your property for more than 12 months before selling, you can benefit from a 50% CGT discount, meaning only half of the capital gain is subject to tax.
  2. Offsetting Capital Gains with Capital Losses: If you’ve incurred capital losses from other investments, these losses can be used to offset your capital gains, effectively reducing the CGT you owe.

Apartment vs House - Choose Your Property Wisely

Think about the type of property you invest in. Apartments generally have a lower land component compared to freestanding houses. Why? Because you’ll only be paying land tax on your share of the land the entire apartment complex occupies, not the whole block.

Utilise Different Land Tax Thresholds Across States

Australia’s states and territories have varying land tax thresholds. This means the value of the land you own before land tax kicks in differs depending on location.

For instance, Victoria offers a land tax-free threshold of $250,000, while Queensland boasts a much higher threshold of $600,000. The Northern Territory? No land tax at all!  Spreading your property investments across states with higher thresholds can be a tax-effective strategy.

Strategic Partnerships - Sharing The Land Tax Load

Land tax is levied on the owner(s) of the property. So, if you’re in a partnership with your spouse or another investor, consider structuring ownership strategically. If your partner hasn’t used their land tax threshold yet, consider buying the property jointly or even solely in their name. This can significantly reduce your overall land tax liability.

Analysing Trusts

Setting up a trust structure to own your investment properties can be another way to minimise land tax. Each trust can have its own land tax threshold, potentially reducing your overall tax burden.

However, be aware that establishing and managing a trust involves professional fees. Carefully consider the potential tax savings against the setup and ongoing costs to determine if it’s the right approach for you.

How KPG Taxation Can Assist You In Minimising Land Tax?

This blog gave you a lot of ideas to conquer the land tax! Remember, these strategies can involve grown-up stuff like tax thresholds and depreciation, so it’s always best to chat with a professional for specific advice.

That’s where tax accountants at KPG Taxation can help with your land tax! They can help you figure out the best approach for your situation and save you money. They can answer your questions about:

  • Which deductions can you claim to reduce your land tax?
  • How negative gearing can work in your favour to offset expenses?
  • Buying an apartment might be a tax-effective choice since you only pay land tax on your share of the land.

Don’t stress about land tax by yourself! Contact KPG Taxation today. They’ll be your land tax warriors and help you keep more money in your pocket. That’s right, free advice to save you money on land tax. What are you waiting for? Call KPG Taxation today!

Consulting with KPG Taxation

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