2020 Land Tax Changes – Recent Updates provide greater clarity and certainty - what you should do now

What you need to know and do

In our last update (which can be viewed here) we identified some ambiguities and uncertainties with the new land tax measures due to commence on 1 July 2020. The Commissioner for State Taxation has now released further guidance. As a result, we can now provide further clarity and certainty around a range of previously contentious matters.

If you or the entities you control hold multiple parcels of land, we again strongly encourage you to calculate your likely land tax liability for 2020/21. If you or your accountant would like our assistance with this process, we have developed a simple-to-use questionnaire which will enable us to quickly undertake a high level review of your land holdings which will:

• estimate your land tax liability for 2020/21 based on current holdings;
• for land held in a trust (of any type) determine whether providing notice of the beneficial interests, unitholdings or nominating a designated beneficiary will result in a better outcome;
• list available options for restructuring together with the type of potential costs associated with each option; and
• identify the savings the options will provide.

Furthermore, by now most taxpayers will have received a notice from RevenueSA requesting land holders to review and confirm or update their information using the RevenueSA Online portal. While attending to this task, if issues arise for you about the questions posed or information to be provided please do not hesitate to contact us for guidance.

For more detail about what has happened since our last article, read on.

What has happened since our last update?

Since our last update, we have been working with our clients, tax professionals and RevenueSA to attempt to clarify and find certainty about how the new Land Tax Act 1936 (SA) measures will be administered.

While we had formed our own view on the new measures, on 18 May 2020, the Commissioner for State Taxation released welcomed further guidance which can be downloaded here: Land Tax Guide to Legislation. To assist land holders in making important decisions before 30 June 2020, we can now provide some clarity and certainty on some of the issues we had previously identified:

• The Commissioner has confirmed that she does not intend to group related companies that hold that land as trustees of different trusts. This means that provided each company gives RevenueSA the now compulsory notice of land held on trust before 31 July 2020, that land will not be aggregated with land held by other related companies.
• Based on this position, the corporate aggregation rules can never be used to include a corporate trustee that holds land on behalf of a discretionary trust in a corporate grouping.
• The corporate aggregation rules will, however, apply to group a corporate trustee of a fixed or unit trust with the trust’s corporate beneficiaries if the beneficiary company holds more than 50% of the beneficial interests (in the case of a fixed trust) or more than 50% of the issued units (in the case of a unit trust) under Section 13G(5) Land Tax Act 1936.
• The Commissioner has also confirmed that the “same beneficiary” rule no longer applies, and accordingly there is no longer scope to group trusts based on the identity of the beneficiaries alone. Unless a trust has given notice of the beneficial interests, unitholdings or designated beneficiary, land held on trust will be aggregated with other land only where land is held by the “same trust” or where s13G(5) applies.
• Discretionary Trusts that do not hold land but instead (for example) hold units in a unit trust that holds land acquired before 16 October 2019 will be deemed to be the owner of the unit trust land, but that land will be treated as subsequent trust land. This being the case, a discretionary trust unit holder cannot nominate a designated beneficiary and will be assessed on its percentage interest in the unit trust land at the trust surcharge rate. The case is the same for land held by a fixed trust with a discretionary trust beneficiary.
• By contrast, land held by the trustee of a fixed trust or unit trust scheme can avoid paying land tax at the trust rate by providing RevenueSA with an optional notice of beneficial interests or unitholdings irrespective of whether the land was purchased for the trust before or after 16 October 2019. How much land tax is then assessed to the beneficial interest holders or unitholders will, however, depend on their identity and in all cases, discretionary trust beneficiaries will be assessed at the trust rate.
• Landlords of commercial properties (where the Retail and Commercial Leases Act 1995 does not apply) will be entitled to recover land tax assessed to the landlord calculated at the trust surcharge rate from the tenant. This general entitlement will of course be subject to the specific terms of the lease. In addition, landlords can apply for land tax relief if they have provided rent relief to a tenant experiencing financial difficulties due to the current COVID-19 crisis. Legal advice should be sought if you are uncertain whether any rent relief granted reduces the entitlement to recover land tax from a tenant.

If you or the entities you control hold multiple parcels of land, we again strongly encourage you to calculate your likely land tax liability for 2020/21. If you or your accountant would like our assistance with this process, we have developed a simple-to-use questionnaire which will enable us to quickly undertake a high level review of your land holdings which will:

• estimate your land tax liability for 2020/21 based on current holdings;
• for land held in a trust (of any type) determine whether providing notice of the beneficial interests, unitholdings or nominating a designated beneficiary will result in a better outcome;
• list available options for restructuring together with the type of potential costs associated with each option; and
• identify the savings the options will provide.

If your current circumstances prevent you from undertaking restructuring before 30 June 2020, then this can also be managed. In the new financial year, we can continue to provide assistance by:

• preparing notices of beneficial interests of trusts or other notices required under the new measures, many of which must be lodged no later than 31 July 2020
• reviewing your 2020/21 land tax assessments to ensure they are accurate
• lodging objections to an assessment if an error has been made
• identifying restructuring options to put in place before 30 June 2021
• providing advice about your current structure and whether it is still the best structure for new land acquisitions
• preparing applications for the various relief options available, namely the:
  • $25 million transition fund which provides a 100% refund of land tax increases of between $2,500 and $102,500 above a taxpayer’s 2019/20 assessment (not available for an increase caused by the application of the trust surcharge rate)
  • Exemption from corporate grouping for companies undertaking residential land developments of 11 allotments or more or undertaking an affordable housing development
  • Exemption from land tax if land is rented through a registered community housing provider for affordable community housing purposes
    

Lastly, by now most taxpayers will have received a notice from RevenueSA requesting land holders to review and confirm or update their information using the RevenueSA Online portal. While attending to this task, if issues arise for you about the questions posed or information to be provided please do not hesitate to contact us for guidance.

For more specific information on any of the material contained in this article please contact Kale Rigano or Christina von Muenster on +61 8 8210 1246 or krigano@normans.com.au / cvonmuenster@normans.com.au.

If you have enquiries regarding your commercial lease, then please contact Yari McCall on +61 8 8217 1307 or ymccall@normans.com.au.