The 2019-20 South Australian Budget announced significant proposed changes to the land tax regime. Changes will be made to the aggregation rules and a surcharge will be imposed on certain trusts from 1 July 2020 (i.e. land held at midnight on 30 June 2020).
The current land tax regime in South Australia is largely based on the legal ownership of land. The proposal is to introduce sweeping aggregation measures that seek to “look through” legal structures to identify one or more ultimate owners or controllers of the land.
Specifically, the Budget announcement states that the measures will include:
a shift to aggregating based on an owner’s interest in every piece of land, rather than only aggregating properties held in the same ownership structure;
introducing provisions to allow two or more related companies to be grouped for land tax; and
introducing a surcharge on land owned in trusts where the interests of beneficiaries are not disclosed or cannot be identified.
The Budget papers do not provide any specific detail as to how the proposed measures would operate. The papers do, however, suggest that the approach will be similar to that adopted in New South Wales and Victoria. It is therefore useful to consider the approach adopted in those jurisdictions.
New South Wales & Victorian Approach
For land owned by companies, the New South Wales and Victorian regimes broadly seek to identify and group “related companies”. Whether companies are related typically turns on whether the same person or the same group of persons:
holds more than 50% of the issued share capital of each company;
is able to cast or control the casting of more than 50% of the votes at a general meeting of each company; or
controls the composition of the board of directors of each company.
As to land owned in common trust structures such as unit trusts/fixed trusts and discretionary trusts, the New South Wales and Victorian land tax regimes broadly proceed as follows:
trustees of unit trusts are subject to higher rates of land tax (called “surcharge rates”) unless the Commissioner is notified of the unit holders, in which case the trustee will be assessed at general rates;
where the Commissioner has been notified of the unit holders, each unit holder will be assessed (in addition to the trustee) on their proportionate interest in the land held by the unit trust. This interest is aggregated with all interests of the unit holder in other taxable land;
in this latter case, the unit holder will be subject to a reduction in its land tax liability on account of the land tax paid by the trustee (so as to avoid double taxation); and
trustees of discretionary trusts are subject to land tax at surcharge rates.
The Victorian regime formerly allowed trustees of discretionary trusts to nominate a beneficiary as having an interest in the trust to avoid the surcharge rates. It is not clear whether a similar provision is proposed in South Australia.
In short, the New South Wales and Victorian trust measures seek to include a proportionate interest in the land in the beneficiaries’ aggregated landholdings, or alternatively seek to levy land tax at surcharge rates.
As might be expected, the Budget announcement is scant on detail. As with all announcements, the precise details will be subject to consultation and scrutiny. At this stage the New South Wales and Victorian approaches serve only as a guide to what might be expected in South Australia.
In our view, further detail on the proposed changes is required in order to make informed decisions on the impact of the changes.
Cowell Clarke is maintaining a close watching brief on the proposed changes and will be able to assist in advising on the impact of the measures as they may relate to your circumstances.