Tax Files: Land Tax – Teething issues under the new regime

Land Tax – Teething issues under the new regime

BRIONY HUTCHENS, DW FOX TUCKER LAWYERS

With the introduction of a new land tax assessment regime from 1 July, 2020, it was expected that there would be a few teething problems. 10 months into the financial year, a large number of taxpayers are yet to receive land tax assessments for the 2020/21 financial year, leaving many advisors and their clients in the dark as to the extent of their land tax liability and their obligations and options leading into the 2021/22 financial year. This article looks at some of the major issues being encountered by taxpayers and some of the things to be aware of moving forward.

ISSUE AND PAYMENT OF ASSESSMENTS

A significant number of taxpayers have not yet received a land tax assessment for the 2020/21 financial year. While land tax is usually assessed and paid over four instalments, it is expected that any assessments yet to be issued for the current financial year will be issued on the basis that the tax for the whole of the year is payable in one instalment. Given that 2021/22 financial year assessments can be expected to be issued shortly thereafter, from a monetary perspective this could put a significant financial strain on many taxpayers. In these instances, it is open to the taxpayer to apply to RevenueSA for a payment arrangement in respect of any 2020/21 land tax assessment, once received, to spread the payment of that assessment out over the next 6-12 months. It is noted that taxpayers need to proactively apply for a payment arrangement, it will not be automatically offered by RevenueSA.

OBLIGATION TO ADVISE IF ASSESSMENT INCORRECT

Given the significant changes made to the land tax provisions, it is likely that some of the assessments issued for the 2020/21 financial year will be incorrect, for example as a result of land not being properly aggregated, land not being assessed at the higher trustee rates, or rebates not being applied correctly.

Where the incorrect assessment results in the tax assessed being less than it should be, if the taxpayer does not notify the Commissioner of the incorrect assessment, they risk the failure to notify being treated as a tax default, which could result in penalties being applied upon the Commissioner issuing assessments for the correct amount.

Accordingly, if taxpayers receive an assessment that is known to be incorrect, they should notify the Commissioner as soon as possible in order to mitigate against any potential imposition of penalties.

RE-APPLICATION FOR EXEMPTIONS

In many instances, the transition over to the new land tax regime has meant that any exemptions that were previously granted in respect of land have not been carried over to the new system, resulting in land tax assessments being raised against property that should be exempt.

Taxpayers should therefore be aware that they may need to lodge new applications for exemption in respect of land previously determined to be exempt. In most instances, this will require the taxpayer to re-provide to the Commissioner information evidencing that the land meets the criteria relevant to qualify for the exemption.

NOMINATION OF BENEFICIARIES

Taxpayers who hold land in a discretionary trust should consider whether to nominate a designated beneficiary in respect of the trust. Nominations can only be effectively made by the trustee of a discretionary trust in respect of “preexisting land”, being land held by the trust as at midnight on 16 October, 2019. If a nomination is effectively made, the preexisting land held by the trust will be taxed to the designated beneficiary at general rates (together with any other land that the designated beneficiary owns), rather than at the higher trustee rates.

Trustees of discretionary trusts have until 30 June, 2021 to nominate a designated beneficiary. If no nomination is made by this time, the right to make a nomination will be lost and the pre-existing land will be assessed to the trustee of the trust at the higher trustee rates.

If a nomination is made, it can be withdrawn at a later time, but cannot be changed to nominate a different designated beneficiary except in limited circumstances such as death or marriage breakdown.

Practitioners therefore need to consider whether their clients with discretionary trusts should nominate a designated beneficiary, and action any decision to nominate prior to 30 June, 2021.

LOSS OF “PRE-EXISTING LAND” STATUS

As noted above, any nomination of a designated beneficiary by a discretionary trust is only effective in respect of any “pre-existing land” held by the discretionary trust. The current position of the Commissioner is that land will cease to be “pre-existing land” if there is any dealing in respect of the land that results in the issue of a new certificate of title in respect of that land, despite the physical asset of the trust remaining the same as that owned as at 16 October, 2019. Examples of dealings that may result in the loss of “pre-existing land” status include: • The subdivision of land into a number of separate titles • The amalgamation of separate titles into one title • The compulsory acquisition or other disposal of a portion of the land • The transfer of land to a new trustee following a change of trustee of the trust.

Any clients with pre-existing land who have made a nomination of a designated beneficiary therefore need to be careful not to inadvertently cause the land to lose that status.

NOTIFICATION OF TRUST HOLDING

It is a requirement of the Land Tax Act that any person who acquires land as a trustee of a trust notifies the Commissioner of the trust holding within one month of becoming the owner of the land. This applies to both new acquisitions of land by a trustee, as well as acquisitions of land by a new trustee upon it being appointed as trustee of an existing trust that holds land.

Practitioners therefore need to ensure that practices are in place to ensure that notification of trust holding is not overlooked.

Tax Files is contributed by members of the Taxation Committee of the Business Law Section of the Law Council of South Australia. B June 2021 THE BULLETIN 31