Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: I live in Sydney, and I'm looking to buy a Gold Coast beach property to renovate and sell. What kind of property taxes am I looking at?
"If you’re looking to purchase an investment property in the Gold Coast, be aware of the three main categories of property taxes that may apply," said Tania Waterhouse, director, Waterhouse Lawyers, a specialist tax law firm in Sydney. They are: stamp duty, capital gains tax and land tax.
You pay stamp duty, a tax imposed by the state government, when property ownership is transferred. The amount is calculated on a number of factors— including the cost, whether it is an investment or residential property, a new or established home, or if you are a first-time home buyer, Ms. Waterhouse said. For example, the purchase of a A$1 million (US$768,000) home would attract a stamp duty of about A$38,000 (US$29,214) for the buyer if none of the above elements apply. But if all of them do, the stamp duty could drop to A$30,000 (US$23,000), she explained.
Foreign buyers of residential property in Queensland, the Australian state where the Gold Coast is located, are subject to Additional Foreign Acquirer Duty, a 3% duty surcharge that went into effect last October. "This would raise the stamp duty in the above example to approximately $71,000 (US$54,584)," Ms. Waterhouse said.
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Whether you’re liable for capital gains tax or income tax depends on your intent when you buy the property, said Geoff Stein, a partner at Brown Wright Stein Lawyers, a tax specialist firm in Sydney. "If you intend to hold an asset for an indefinite period, then the asset is capital. If you intend to hold the asset to sell it or improve and sell it, then any profit is income."
If you plan to renovate and sell within 12 months, you will have to pay income tax and can't claim any capital gains tax concessions, he said. However, if you hang on to an investment for more than 12 months, you pay only capital gains tax, which will be half the income tax rate.
Your expenses are deductible if you borrow money to renovate. Incidental costs, such as stamp duty, real estate agent fees and conveyance costs—which usually include transfer registration fees and legal fees—will be deductible if it's an income project, Mr. Stein said. If it’s a long-term capital hold, you can deduct these incidental costs from the gain before calculating the tax, he continued.
Should the renovation result in a complete overhaul or a new building, you’ll also have to pay goods and services tax, or GST, if you sell the property within five years of making the renovations, he said. "GST is normally 1/11th of price, so if you sell for A$880,000 (US$677,072), you pay $80,000 GST."
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Land tax is another property tax to consider. It applies if all the land you own in Queensland has a total taxable value of A$600,000 (US$461,400) or more. Ms. Waterhouse said The tiered tax starts at A$500 plus one cent for every dollar over A$600,000, and it goes up to A$62,500 plus 1.75 cents for every dollar over A$5 million, she said.
In addition, there are "the usual council and water rates while you hold the land," Mr. Stein said. Council rates are the equivalent of city taxes.
These tax circumstances can become complex and tricky, so it’s best that you get proper tax advice, he suggested.
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