What does the End of Financial Year mean for landlords?

The End of Financial Year is approaching, and with it comes changes to the Land Tax legislation starting July 31st, 2020.

In June 2019, the State Government announced they would be introducing new measures aiming to close existing loopholes for landlords who own multiple investment properties.  

How investment properties will be treated:  

  • The government has moved to an aggregate model where they will group properties held by a common owner, even if they are held in different trust entities

  • RevenueSA will have additional authority to determine the ‘true owner’ of a property to identify whether a landlord holds multiple properties across different ownership structures 

  • For land held in companies, the new laws will seek to group related corporations and assess the group as if the land was held by a single corporation 

  • An additional surcharge will be applied to landlords who own properties in trusts, but have not disclosed the beneficiaries of those trusts. 

How rental properties will be taxed: 

  • If your property/ies are valued at $450,000 or less, you will not incur any land tax (previously this was $391,000

  • The top marginal rate of land tax will be reduced to 2.4% (previously 3.7%) and the top threshold has been increased to $1,350,000 (previously $1,302,000)

  • A new tax bracket has been introduced at 2.0% for properties with the total value between $1,098,000 and $1,350,000  

  • There has been a reduction in the rate of land tax on land valued between $755,000 and $1,098,000. 

For more information on these changes, go to RevenueSA

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Expected impact on the Adelaide rental market: 

We’ve seen these changes already start to have an effect on the local investment landscape. We envisage the impact will be profound in the way investors behave and purchase property in South Australia.  

Predicted key trends include:  

1. Increase demand for smaller properties and units 
With the tax-free threshold increasing to $450,000, we anticipate that investors will make the most of buying smaller properties and units. We foresee that 2-3-bedroom units in blue-chip suburbs will be hotly contested. 

2. Declining portfolio size 
We have seen investors with large property portfolios selling their assets in anticipation of these changes. The profile of a property portfolio in South Australia is likely to move to a smaller size of 3-4 properties, not the 30+ properties previously seen. This new tax model creates a significant financial burden on those who currently hold a sizeable property portfolio. 

3. Change in investor profile 
We anticipate that younger investors will enter the market and purchase in the affordable end (below $450,000). We also see a rise in the “rent-vestor”, people who rent and own investment properties. This trend has been building over the past three years and we expect it to continue. 

4. Interstate property  
We envisage investors may venture further afield to purchase property. Many may start to take a national perspective to property ownership, which is only fuelled by the rise in digital tools that are available to buyers to view property from anywhere in the world. Now, more than ever, it is easier to inspect a property online prior to purchasing, opening more opportunities for investors. 

Suzannah Toop