Ask Margaret: How can I reduce my land tax exposure?

Ask Margaret: How can I reduce my land tax exposure?
Margaret LomasDecember 7, 2020

Hi Margaret,

I am a fortunate Aussie expat whom has just reached five years overseas. As expats our land tax exemption in Queensland is only $350,000 per person. 

My wife and I own two properties in Brisbane and are looking to purchase our third and future home.  Our tax planning strongly requires us to increase our current debt levels.

Unit : $200,000 land value, 50/50 ownership,principal place of residence up to end 2009.

Post war 810 square metre splitter: $405,000 land value, one title, 100% my name.

Future home: $800,000 to $1 million, 50/50 ownership.

Do you have any recommendation on how we can eliminate or reduce our land tax exposure after the purchase our new home while remaining oversees?

We are likely to face an $8,000 to 10,000 yearly land tax bill.  We have considered selling our unit as we can still access the capital gains exemption and going forward it is not likely to provide growth to match the cost of land tax.

I look forward to your assistance.

Thanks

Julyan 

Hi Julyan,

It always worries me when the tax accountant’s response to saving tax is to increase your level of borrowing.

While I support borrowing to invest, the amount of debt you ultimately obtain must suit your personal appetite for risk, not some accountant’s attempt to reduce your tax.

It’s all very well to say ‘get more debt’ but to do so without care and extremely careful planning around what you buy might just end up diverting those saved taxes into property losses when you buy the wrong property!

You cannot get the usual principal place of residence (PPOR) exemption on your land tax as you do not reside here – and so the normal thresholds that apply to property other than your own home apply to you, as you have so rightly pointed out. 

Once you make this next property your home, it will come under the exemptions, so maybe you need to consider the length of time it will be just an investment and calculate the total amount of tax you will actually be up for – then assess if this amount is worth getting into the market now. 

It could be that the amount of money you save by buying now, assuming what you buy goes up in value, is more than the tax you have to pay, making the payment worthwhile.

In addition to this you could: 

  1. Explore how you can make your PPOR your own home – this may entail coming home for a month to live in the newly acquired property as soon as you settle, then invoking the six year rule to move out of it for up to six years.  While this deals with capital gains tax it may also deal with land tax too – you must check with the QLD office of state revenue for their policy on PPOR exemptions and it’s relation to land tax.

  2. Instead of buying a property now to live in, instead look for additional investment properties but choose them in a state other than Queensland.  Land tax is a state based tax and you get a tax free threshold in each state!

      Note that the threshold is different in every state, but this could allow you to add to your portfolio with growth assets without further burdening your land tax liability.

  3. If you must stay in Queensland, consider buying a commercial property, where land tax is an outgoing recovered from the tenant.

Apart from these ideas, land tax is a fact of life and one which has no legal way of avoiding.  As with all tax advice though, be sure to contact an accountant to discuss your needs, and choose one who can demonstrate a sound knowledge of property investing tax matters.

Regards,

Margaret

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Margaret Lomas

Margaret Lomas is a best-selling author and writes and hosts the popular Property Success With Margaret Lomas and Your Money, Your Call, both on Sky News. She is the founder of Destiny.

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