Blog - Commercial
A GUIDE TO COMMERCIAL REAL ESTATE TAX
During the past 15 years, some taxes and duties on commercial real estate have been abolished. Unfortunately, several others remain.
When you buy or sell a property, all three layers of government want a cut. Whether it’s municipal councils ensuring that you, as a new ratepayer, meet your obligations to pay rates, the Federal Government expecting you to disclose if a capital gain tax can be levied on a sale, or the State Government imposing any taxes on your new property.
The tax terrain for commercial property is complicated, and you will need a professional adviser to help you work out which taxes will apply to you given your individual circumstances. This article is simply a guide to commercial real estate tax. Each property owner will have different obligations that may not be covered in this guide. For a comprehensive understanding of whether you are liable to pay land tax or any other government levy, seek professional advice.
You may have to pay land tax if a property you own is not the home in which you live. Whether you are obliged to pay land tax depends on what type of land you own and how much it is worth.
You must register for land tax with the NSW Government Department for Revenue regardless of whether or not income is earned from the land.
Land tax may be payable on vacant land, including rural land that is not used for farming, a holiday home or an investment property.
The threshold for land tax is currently a property value of less than $629,000. Any value above this will attract land tax.
According to the latest information on the NSW Government land tax website, the levy is $100 plus 1.6 per cent of the land value between the threshold and the premium rate threshold of $3,846,000. After that, the tax paid by landowners equals 2 per cent of the value.
Matters become complicated where partnerships are involved. Different partners with a joint ownership will have distinct land tax liabilities depending on their individual landholdings. Seek professional advice on your liability if you own a property in partnership with another party.
Even if you do not own a property directly, you may still be liable for landholder duty. This tax is applied to the units you have in a fund that owns property.
A landholder is a unit trust scheme, a private company or a listed company that owns land worth $2 million or more.
If you have invested in a property fund, such as an Australian Real Estate Investment Trust (A-REITS) or a listed property company, check with your professional adviser if you are obliged to pay landholder duty.
Some areas of Sydney are covered by a parking levy where properties’ car spaces attract a tax.
There are two categories. Properties in the City of Sydney, North Sydney and Milsons Point business district attract a tax of $2390 a year per car space.
Owners of properties in Bondi Junction, Chatswood, Parramatta and St Leonards that have car spaces must pay $850 each a year for each parking spot.
Transfer duty, which was formerly known as stamp duty, is a tax on the sale or transfer of land. It can also be levied on certain improvements to properties. Check with a professional adviser to understand if you need to pay this levy.
Different rules apply to whether a property was bought off the plan or if it was an established property that has been purchased.
The following is a simplified guide to the levy:
|Value of the property||Rate of duty|
|$80,001 – $300,000||$1,290 plus $3.50 for every $100, that the value exceeds $80,000|
|$300,001 – $1m||$8,990 plus $4.50 for every $100, that the value exceeds $300,000|
|Over $1m||$40,490 plus $5.50 for every $100, that the value exceeds $1,000,000|
|Premium Property Duty: over $3m||$150,490 plus $7.00 for every $100, that the value exceeds $3,000,000.|
If you thought after having ticked off all the above boxes you were in the clear, think again. The Federal Government also wants to get in on your property portfolio action, too.
There may be GST obligations when you buy, sell, lease or rent commercial premises. Calculating GST is complex and advice from a tax professional is necessary to understand your liability. As a general rule of thumb, if your business has a gross turnover of at least $75,000, then you are liable to register for GST.
If you sell a business as a going concern, you may be able to avoid GST.
Commercial properties from which businesses operate can incur capital gains tax if, when sold, the proceeds are more than what was initially paid for the asset. Owners of these properties must have records of how much they paid for the property to calculate CGT when they sell the premises. If the sale produces a loss compared to your original purchase price, then no CGT is payable.
However, if the sale makes a profit, the amount of CGT payable is variable, depending on the type of ownership. Generally, CGT is 30 per cent of the gain made through a sale, over and above the original price, rather than the total of the sale.
You can make a nice packet out of owning commercial real estate so long as you take into account your tax liabilities.
DISCLAIMER: The information on this website and the links provided are for general information only and should not be taken as constituting professional advice. You should consider seeking independent legal, financial, taxation or other advice before you make a financial decision to understand the options that relate to your unique circumstances. TGC is not liable for any loss caused by the use of information provided on this website.