Gday all,
Hoping to generate some debate amongst the learned folk here on whether the standard recommendation to invest in property via trusts will be qualified somewhat if the changes to Land Tax as currently proposed by the Vic government proceed . As it stands individuals and companies will benefit from the new schedule and trusts will be hit hard.
As I undertand it the reason for this change is the habit savvy investors have had of creating new trusts to avoid hitting the top rates of Land Tax , so the Bracks government has decided that instead of trying to track this aggregation they'll just hit everyone with a nice high rate.
I have all of my structural issues sorted and have come up with a trust structure that seems to suit. My question is this - as a professional investor I have very little litigation risk,all properties will carry legal liability insurance of $10 mill via Landlords Insurance, so...........is the flexibility of owning property in a trust (distributing income - when cashflow +ve - and capital gains) and other benefits worth the extra land tax per year for someone like myself?? Should I wait and see what happens before setting up a trust for property investment?? Are we recommending investing in other states??
I'm pretty certain that the benefits of a trust will still outweigh this new impost , but am keen to hear any contrary views.
I have summarised the magnitude of the changes below- the four columns from left to right are -
a) land value
b) land tax for an individual or company
c) proposed land tax for a trust
d) the difference
$100,000 $0 $1000 $1000
$200,000 $300 $2000 $1800
$300,000 $400 $3000 $2600
$400,000 $600 $4000 $3400
$500,000 $800 $5000 $4200
$600,000 $1180 $6000 $4820
$700,000 $1680 $7000 $5320
$800,000 $2180 $8000 $5820
$900,000 $2680 $9000 $6320
$1,000,000 $3680 $10,000 $6320
$1,100,000 $4680 $11,000 $6320
$1,200,000 $5730 $12,050 $6320
From there on the difference is $6320 per year plus the megabucks you'll lose from not being able to use seperate trusts.
(for $3 mill of land the difference , accounting for the use of mutiple trusts, would be close to $45k pa if you could be bothered with a new trust for every $1m land value)
I believe the TIA has put a proposal to the Bracks Govt suggesting that trusts be able to treat the land value within the trust like income . Thus the trust will have a default land tax scheme according to the above but has the option to "distribute" parts of that land value to the individual beneficiaries (which they must sign consent for) and is then added to their individual assessment and , as a result ,taxed at the rate for individuals. Seems like a good compromise.
Any thoughts??
Cheers,
Ed.
