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Stamp Duty and Land Tax Issues

Land Taxtax

  • One tax that can be avoided if you structure your property portfolio corre
    ctly is Land Tax. When you start investing in property land tax is not usually an issue. You can obtain an exemption for your Principle Place of Residence (PPR) and if you add a strata unit or two (2) over time you would usually come in under the threshold.
  • But once your property portfolio’s land value exceeds the threshold, you could be in for a nasty shock when the bill comes in.
  • Each State and Territory of Australia calculates its Land Tax differently, with the exception of the Northern Territory which does not impose land tax at all.
  • It is important to discuss the available options with an experienced accountant or taxation specialist before committing to any purchase to ensure that you are properly advised with respect to your potential Land Tax obligations.

Stamp Duty

  • NSW Stamp Duty liability is incurred upon the sale or transfer of land, business or other assets in New South Wales.
  • The liability for stamp duty arises when the sale or transfer occurs and it is unimportant whether or not the transaction is reflected in a written instrument or by other means, including electronic means. However, if the sale or transfer is effected by a written instrument, liability for stamp duty arises when the instrument is first executed.
  • Stamp Duty in New South Wales is payable within three (3) months of the date liability. If you are buying off the plan, you can receive an additional twelve (12) months to pay.
  • The NSW Government charges stamp duty on the following transactions:
  • an agreement for the sale or transfer of dutiable property,
  • a declaration of trust over dutiable property,
  • a surrender of an interest in land in New South Wales,
  • a foreclosure of a mortgage over dutiable property,
  • a vesting of dutiable property,
  • the enlargement of a term in land into a fee simple under section 134 of the Conveyancing Act 1919,
  • a vesting of land in New South Wales by statute law, whether inside or outside Australia,
  • a lease in respect of which a premium is paid or agreed to be paid.
  • There are a variety of exemptions available in relation to payment of stamp duty including:
  1. Transfers between Married Couples and De-factos for mutual love and affection in relation to the PPR only as joint tenants.
  2. Transfers between married or De-facto couples whose relationship has broken down
  3. Transfers by Court Orders.
  4. Transfers of Farming Property between family members
  5. Transfers from Department of housing to tenants
  6. Transfers to Charities or benevolent bodies
  7. Transfers due to corporate reconstructions.

CGT

  • Capital Gains Tax (CGT) is triggered on the disposal of an asset unless exempted. The capital gains tax law is expressed in terms of a set of 52 CGT events. CGT is the tax charged on any capital gains that arise from the sale or disposal of any asset bought or acquired after September 1985.
  • Since 21 September 1999, small business CGT concessions were introduced reducing tax on small business owners retiring, and on active assets being sold, and allowing a rollover when selling one active asset to buy another.
  • The CGT discount of 50% for individuals and trusts or 33 1/3% for superannuation entities is only available where the CGT asset has been held for at least one (1) year. The CGT discount is not available to companies.
  • The major exemptions include but are not limited to:
  • Principle Place of Residence;
  • Assets acquired prior to 20 September 1985 (known as a Pre-CGT asset)
  • Personal use assets up to $10,000.00
  • Collectables up to $500.00
  • Motor Vehicles not exceeding 1 tonne and less that nine (9) passengers.
  • Some types of Compensation
  • Some Life Insurance payments
  • Gambling wins or losses
  • Bonds and discounted notes
  • Medals and decorations for bravery, provided they were acquired for no money.
  • Assets held for less than twelve (12) months
  • There are two (2) main ways you can abolish the need to pay CGT.
  1. DO NOT ever sell! If all you do is buy property and never sell, you will never need to pay CGT.
  2. The other option is to make the purchase your PPR. As your home is exempt from CGT, you can buy and sell your home many times over and not pay any CGT.
  • Once you start investing in multiple properties, it is imperative you keep all records of payments connected to the properties as the calculation for CGT is:

Property Sale Price LESS Cost Base = Capital Gain or Loss

TARP

  • Taxable Australian Real Property (TARP) refers to assets being disposed of by foreign residents that have incurred a capital gain or loss that would attract a tax liability.
  • New laws proposed to commence in relation to Contracts entered into after 30 June 2016 will ensure that foreign residents tax for a Capital Gain will be collected by the ATO under a new regime requiring the purchasers to withhold an amount equal to 10% of the purchase price and remit this sum to the ATO.
  • This will apply to assets including, but not limited to:
  • TARP, including Land, Leases of land, Company Title interests, Mining, Quarrying and Prospecting Rights.
  • indirect Australian real property interests, including an interest of 10% or more in an entity whose underlying value is predominantly derivative from Australian Real Property.
  • an Option or right to acquire such property or interest.
  • Exemptions will apply for situations including, but not limited to:
  • transactions by Australian Residents
  • transactions not exceeding $2 million.
  • transactions for which a clearance certificate is obtained from the Commissioner.
  • where the vendor has made a declaration that it is an Australian resident for income tax purposes and the purchaser does not know that the declaration is false
  • transactions conducted through an approved stock exchange
  • arrangements already subject to an existing withholding obligation
  • transactions involving vendors who are subject to formal insolvency or bankruptcy proceedings.

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This communication is sent by Kreisson Legal Pty Limited (ACN 113 986 824). This communication has been prepared for the general information of clients and professional associates of Kreisson Legal. You should not rely on the contents. It is not legal advice and should not be regarded as a substitute for legal advice. The contents may contain copyright.