How can I reduce the land tax I pay on my property?

My wife and I jointly own two investment properties in Victoria, and together they are costing us huge land tax bills. As you know land tax applies on the total value of investments above a threshold of $300,000. We are thinking of changing the titles to individuals so that each has the threshold and incurs a single holding tax by each gifting their half to the other. But I believe that would incur stamp duty and capital gains tax. Any advice on how best to reduce land tax without incurring huge costs?

Unfortunately, you’ve arrived at your decision too late. If you had used an accountant, they could have warned you of this trap at the time of purchase.

The recent boom in house prices has sent land tax valuations rocketing, but there may be little you can do to avoid it.Credit: Simon Letch

I can’t help much other than to point out that, in Victoria, couples can transfer their home to their spouse without paying stamp duty, as with CGT. Such a transfer for nil consideration or money is also called a “natural love and affection” transfer but, sadly for you, exemptions for duty and CGT don’t apply to investment properties.

Transfers between spouses during a relationship breakup, or via will are exempt from duty and CGT. So apart from hopping from property to property, divorce or death, there’s not much you can do to escape stamp duty and CGT, which would be considerably higher than land tax.

I understand the recent boom has sent land tax valuations rocketing, which is one reason, along with demand, why rents are soaring.

I’m 70 and own shares worth $150,000, a mortgage of $50,000 on my house and $42,000 in super. I think a wise thing to do is pay out the house mortgage with the super and then sell $8,000 worth of shares to cover the remaining mortgage. In previous years it was better to use the mortgage to own shares but recently, the share returns have been dismal while the interest on the mortgage is growing. So, given all that, what are the tax implications of selling my shares, and do you feel I’m making the best decision? I’m on an aged pension and own my house apart from the said mortgage, its value two years ago being around $850,000.

You are correct in that if you can borrow at, say, 3 per cent, and invest to earn 6 per cent (both after tax), then it is a profitable investment. However, in your case, the interest on your home mortgage is not deductible while your share dividends are taxed and any super pension is tax-free.

If you prefer directly owning shares then, yes, your plan makes sense. But if you are looking for the most tax efficient approach, I would sell shares to pay off the mortgage and invest your super in that fund’s Australian shares option to improve returns when the market rises.

You can limit any capital gains tax by checking to see if you are carrying forward any capital losses from earlier years. These can be carried forward indefinitely and will offset gains. Also, prepare a list showing the capital gain for each parcel of shares and try to balance gains against losses so that you can raise $50,000, or $8,000, with a minimum of tax. If you end up with a capital gain from shares held over 12 months, only half is added to your assessable income.

Does the proposed 30 per cent tax on earnings of super balances above $3 million include the full balance amount or just the balance above $3 million? If the new tax is only on the earnings above the $3 million balance, can you imagine the burden on super funds to calculate this component only? And what if an individual has benefits in several super funds, how does one consolidate and figure out earnings above $3 million, e.g. if one fund has $1.5 million and the other $2 million? It will be a nightmare! Also, how will 10 per cent capital gains tax in super be handled for accounts above $3 million, or maybe this remains at 10 per cent?

First of all, the new tax will not begin until the 2025-26 financial year, so taxes won’t have to be paid until 2026-27, often as late as April 2027 for SMSFs.

The additional 15 per cent tax only applies to the proportion of earnings corresponding to balances above $3 million. In other words, if you have $6 million in super, then 50 per cent would be taxed at 15 per cent and the remainder at 30 per cent, both sets of taxes being reduced by any franking credits (which represent 30 per cent company tax already paid).

Any CGT would also be split 10 per cent for assets below $3 million, and 30 per cent above. Apart from the latter, any asset-rich fund member would still be paying less tax than if the investments were in their own name.

I wouldn’t worry too much about people with multiple super accounts. All super funds report a member’s Total Superannuation Balance or TSB and tax file number annually. You can find yours on the MyGov website. So the ATO’s computer can quickly find anyone with a TSB over $3 million.

If the ATO has any trouble, I’m only too happy to lend them my calculator.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026.

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