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Updated land tax anaylsis

Proposed land tax reforms in SA: Update on impacts for office owners

Following Colliers International's Office Horizon Series released in August 2019, where we wrote about the potential impacts on land tax for owners of property in the Adelaide CBD, we have updated our modelling to reflect further changes to the proposed policy.

On Tuesday the 10th of September 2019, South Australian Treasurer Rob Lucas advised that they had received updated modelling, prepared by Treasury and reviewed by PwC, on the likely State Government revenue impacts of the land tax aggregation changes. 

As a result of this updated modelling, the State Government will now bring forward the proposed reduction in the top land tax rate as well as increasing the tax-free threshold from $391,000 to $450,000. 

The State Government are now proposing a top land tax rate of 2.4% (down from the current rate of 3.7%) which will take effect from 1 July 2020. 

However, this modelling and land tax rate reductions still does not appear to have considered the CBD revaluation initiative which, for the Adelaide CBD, will have concurrent timing with these changes to land tax. 

Our previous analysis examined the increase in land tax payable for a hypothetical property in the Adelaide CBD with a market value of $10,000,000. Assuming that the site value increased from 37% of market value (based on the currently conservative site values) to 80% of market value following the revaluation initiative, land tax increased from $101,970 to $261,070 or 156% at the current top land tax rate of 3.70%. Utilising the same scenario and adopting the proposed new top land tax rate of 2.4%, land tax payable on the current site value decreases to $70,501. 

However, accounting for the revaluation initiative the assessed land tax payable will increase to $173,701. The table below outlines our calculations:

land tax image sized

In summary, based on this hypothetical scenario and not factoring any additional increases through aggregation, the cumulative impact of the revaluation initiative and simultaneous reduction in the top tax rate, an owner will still have a land tax bill that is $71,731, or 70.3% more than they currently do. 

Colliers International's Valuation and Advisory Services experts in Adelaide will continue to monitor changes to the proposed land tax rulings and update our modelling where necessary. For more information on how these proposed changes may affect your property/ portfolio please contact one of our Valuation & Advisory Experts today.