Amidst the outcry over the Victorian Government’s recently announced increases in land tax rates, it is more important than ever for landowners to consider potential strategies for containing their land tax cost.
Indeed the latest announcement is just a further symptom of the Government over-reliance on land tax, which is also impacting landlords in a stealthier manner by virtue of rising land values and aggressive approach in valuation methodologies.
Fortunately there are two proven strategies for containing land tax costs which are particularly relevant in the current environment.
The first is the effective use of multiple land owning trusts which are separately assessed for land tax purposes so land tax savings result from disaggregation of the landholdings and accessing the benefit of lower ad valorem rates for each trust. Assuming the land tax hike survives the inevitable political pantomime now in full gear, the annual savings from using multiple trusts will be up to $51,525 for the second and each subsequent trust that holds land valued $3,000,000 or over. The benefit has just increased by $9,000 per trust as a result of the top rate hike to 2.55%. These are significant recurrent savings which can materially impact project economics and investment returns. Whilst structuring landholdings in separate trusts achieves the best land tax savings outcome for significant landholdings over the top bracket value of $3,000,000, the benefits of disaggregation of landholdings exist even if land value per trust is less than $3,000,000 albeit the savings are offset by the land tax trust surcharge that applies to land valued less than $3,000,000. This needs to be analysed on the circumstances of each particular case.
Of course, the utilisation of multiple trusts is not necessarily easy and is practically more efficient when implemented during the process of land accumulation. A restructure of existing land holdings could give rise to prohibitive stamp duty and capital gains tax costs which would make the potential land tax savings unachievable. Nevertheless if your land holding strategy, whether as a developer or investor, has not been properly stress tested from a land tax and overall efficiency perspective then now is a good time to have that done.
The second potential strategy is to successfully challenge valuations of site value, which is used for the purposes of assessing land tax. Objections to valuations are ordinarily due within 60 days from the receipt of the Council rate notice around July-August each year, however where this timeframe is for any reason missed there is a second bite of the cherry available for challenges to site value under the land tax assessment which is issued in the beginning of the year following the valuation. We continue to see clients presenting with unsustainable valuations, in part driven by excessively simplistic approaches taken in determinations of value and without properly taking into account unique characteristics of the relevant site. These valuations can and are often successfully challenged upon detailed scrutiny, including the engagement of specialist valuation support which in many cases produces a material and sustainable reduction in land tax.
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Biljana Apostolova, Partner
Peter Poulos, Partner