Victoria's New Land Tax: Implications for SMSFs and Trusts

Victoria's new land tax, effective January 1, 2024, poses significant challenges for SMSFs holding residential properties left vacant for more than six months. However, its implications extend beyond SMSFs to encompass trusts holding similar assets. Let's delve deeper:

SMSFs:

  • Increased Costs and Reduced Returns: The escalating tax rates (1% to 3%) based on vacancy duration will directly eat into rental income and capital gains, squeezing SMSF cash flow and impacting their ability to meet pension payments and investment goals.

  • Diversification Pressure: This tax might make Victorian residential property less attractive for SMSFs, prompting diversification towards other asset classes to mitigate risk and optimise returns.

  • Early Sale Considerations: Some SMSFs might consider selling their properties before the tax fully kicks in, potentially leading to suboptimal market timing and financial implications.

Trusts:

  • Unexpected Tax Burden: Trusts holding residential properties that fall under the "vacant" definition will face the same tax consequences as SMSFs, creating unforeseen financial strains and impacting income distribution to beneficiaries.

  • Review of Trust Deeds: Careful review of trust deeds is crucial to assess whether any specific clauses exempt the property from the tax or necessitate adjustments to avoid unintended consequences.

  • Potential Conflicts of Interest: For discretionary trusts, trustees must navigate potential conflicts between tax minimisation and beneficiary interests when deciding on property occupancy or disposal.

Recommendations for Both:

  • Seek Professional Advice: Both SMSF trustees and trust beneficiaries should consult qualified legal and financial advisors, such as Salt Financial Accountants, to understand the tax's intricacies, assess its impact on their specific circumstances, and explore potential mitigation strategies.

  • Property Occupancy Planning: Proactive efforts should be taken to ensure property occupancy within the six-month limit, such as tenant leases, short-term rentals, or temporary family use.

  • Portfolio Reassessment: Diversification across asset classes and exploring alternative investments outside Victoria are prudent considerations to maintain financial stability and long-term growth.

Salt Financial Accountants has a team of experienced professionals who can help you navigate the complexities of the new land tax and its impact on your SMSF or trust. Please feel free to contact us to discuss your specific situation and receive personalised advice.

*Disclaimer: This information is intended for general knowledge purposes only and does not constitute legal or financial advice. Please consult qualified professionals, such as Salt Financial Accountants, for specific guidance tailored to your circumstances.

Jenni Anderson