New modelling shows homeowners can expect to pay up to $50K more under Premier’s controversial measure

The Australian Institute of Conveyancers (SA Division) (AICSA) has joined the Property Council of South Australia’s call for the Marshall Government to once again rethink its controversial land tax measure.

New modelling from the Australian Institute of Conveyancers (SA Division) (AICSA) shows the debilitating costs of the Premier’s proposed land tax measures on South Australians.

Speaking about the need to rethink the measures, AICSA CEO Rebecca Hayes said “As our concerns have so far been ignored, we have taken measures to work with Stevens Partners to undertake a desktop study to show the debilitating costs of the proposed land tax measures.

“Until now, it has been legal for investors to properly structure the ownership of their properties to limit their land tax liability to a single holding tax position. Now, however, these investors are faced with both aggregation and significant increases in property values as a result of the Valuer-General’s re-valuation initiative – it’s a double whammy.

“The new measures will affect all South Australians who have invested their hard-earned money into properties. Our case studies, conducted for AICSA by Steven Partners, show the hard-hitting reality of the proposed changes,” said Ms Hayes.

AICSA is keen to point out that the Treasurer’s examples that show how a South Australian who owns six houses and currently pays little or no land tax, does not take into account the net effect of the introduction of the measure. In that example annual land tax liability will escalate from as little as nil to as much as $55,000 per annum across the six residential properties.

MODELLING PREPARED BY STEVENS PARTNERS

In our first case study, John* migrated to South Australia from Greece in the early 1950’s. He has worked hard his whole life and invested his savings in residential property. John has a modest portfolio of 7 properties that he rents to low to medium income earners. John has structured his properties to reduce his land tax liability, which enables him to charge below market rents to his tenants. Under the current arrangement, John pays $565 in land tax each year. Under the government’s proposed aggregation, John’s liability will increase to $51,650. John’s financial position is such that he will not be able to afford to retain his properties and will likely need to sell them, putting his tenants’ housing at risk and losing his retirement income.

The second case study is based on Mary Smith* who has spent years diligently working and planning for a comfortable retirement. Mary has a small, commercial property that she currently leases, seeing a return of $40,000 per annum. Additionally, Mary invested $200,000 inheritance into a Real Estate Investment Trust (REIT) – a managed investment scheme that owns a large, commercial property from which she earns dividends. Mary’s dividends are paid to her net of land tax which has already been paid at the maximum single holding rate by the REIT, currently 3.7%. Under the new measures

proposed by the Marshall Government, Mary’s small investment property and her REIT investment will be aggregated; the result being that she will pay an extra $13,800 per year for her small commercial property (she currently pays nothing for this property because the value is below the threshold).

Mary, who is 61 years old, will suddenly find herself facing financial uncertainty and worry. Despite her years of hard work and carefully investing her retirement funds, she will find herself paying close to $14,000 per year for unexpected and unplanned land taxes which cannot, by law, be recovered from her tenant. In a worst case scenario, other South Australians who, like Mary and John, have planned for their retirement will find themselves, possibly for the first times in their life, short of money and possibly needing to sell their assets and resort to government benefits.

The third case study, for the proposed land tax measures, will see residential new home builders adversely affected. At present, it is common practice for builders to keep ‘display homes’ on various sites as the most effective means of promoting their building product, allowing clients to make informed decisions and select finishes for their new homes thus driving construction opportunities.

However, the land tax costs associated with keeping these display homes will likely force builders to cease to offer display homes as a result of the unsustainable holding costs. Alternatively, these additional costs will be passed on to the consumer, which will impact sales and affordability. This impact will be felt across the construction industry, which is presently experiencing its lowest approval numbers in many years.

It is likely that this measure will force businesses, ones which have shown long-term commitment to South Australia, out of the state, thereby impacting the availability of much-needed affordable housing.

For example, a builder who has eight display homes in four separate subdivisions, in four separate ownership entities currently pays $6,068 per annum in land tax. The effect of aggregation increases this to $66,798 per annum which, over the five-year life of a display home, makes them an unaffordable business tool. This is a direct impost on business in South Australia.

The AICSA, therefore, implores Steven Marshall to understand that the planned restructuring will adversely affect both genuine property investors in South Australian and seriously affect housing affordability, and the measures will in fact seriously affect the financial future of untold generations of South Australians.

“South Australia currently has the highest land tax rate in the country. While the AICSA welcomes the proposed lowering of the land tax rate; this is simply a misguided, inappropriate and non-sustainable land tax reform.”

Rounding up her thoughts, Ms Hayes said: “The AICSA is calling for the Marshall Government to look at all land tax options, including a flat land tax rate before imposing a penalty on people like Mary and John, mum and dad investors, the housing industry and the property investment sector and ultimately all South Australians.”

/Public Release.