The growing impost of “wealth taxes” is something to be aware of when working on a wealth plan that includes property investments. As the wealth of a property portfolio grows, so too do the taxes.
While federal income/capital gains taxes are well known to investors, the financial impact of “wealth taxes” can often be overlooked. Understanding and incorporating these costs will ensure that the investments remain appropriate for the broader wealth picture.
Some of the taxes and duties to consider when working with property in a wealth plan include:
- Transfer duty on acquisition;
- Additional foreign acquirer duties;
- Land taxes (including foreign owner surcharges); and
- Victoria’s coming Windfall Gains Tax.
The Financial Impact of Wealth Taxes
It is important to consider the financial impact of these when dealing with property as part of the broader wealth plan. Particularly as these duties and charges have increased over the years, (varying per state/territory), and even more so for foreign residents.
Most recently, the Queensland Revenue Office has legislated that from 1 July 2023, land tax in Queensland will be assessed based on a taxpayer’s Australia-wide landholdings. This change away from the usual state-based assessments is an Australian first, and we expect the other states will be watching eagerly to assess whether to implement these updates as well.
Victoria has announced their Windfall Gains Tax which will also commence operation from 1 July 2023. This tax applies to uplifts in value in excess of $100,000 resulting from a rezoning of the land. The tax is effectively 50% of the resulting “windfall gain”.
These additional imposts add to the number of wealth taxes to be aware of when assessing the value of an investment to add to the portfolio.
As an example, a foreign resident acquiring a residential investment property today in Brisbane (Queensland) for $1,000,000 could expect to pay the following:
- Transfer Duty: $38,025
- Additional Foreign Acquirer Duty: $70,000
- Land Taxes (assuming no other properties are held): $25,500 (per year)
These costs increase the investment outlay in the first year by around 13% – a significant cost impact to consider in assessing investments in property in Queensland. This picture is not too dissimilar across other states and territories as well.
Exemptions for transfer duties and land taxes may apply in certain circumstances, such as for properties acquired as a main residence, or for properties that are inherited, however such exemptions generally don’t apply for properties acquired as investments.
Therefore, it is important to know and understand these “wealth taxes” when including property as part of the wealth portfolio. Incorporating these costs will assist in ensuring the investment is appropriate in the broader wealth management plan.