Aggregation aggravation and the government grab

in investment •  last month 

Most people understand what the definition of Government is...Google says: "the group of people with the authority to govern a country or state; a particular ministry in office", which sums it up nicely. Most, however, don't know what governments do in the main, or those individuals who form governments...Except line their own pockets and pave the way for their future's once out of power.

This is certainly the case in respect of the Government here in South Australia (SA) and their proposed new laws on property Aggregation. The proposed changes set to completely alter the landscape of property-ownership in SA and many I run into in the course of performing my job simply have no clue as to how it may affect them.

The State (Liberal) Government announced that they intend to close loopholes that exist for property owners with multiple parcels of land - The land component of every property in the State. They intend to aggregate land/property held by a common owner(s), beneficial owners - meaning group it together no matter what "entity" (company) actually owns that land or property. In the situation where an individual owner could not be identified they would also pay a surcharge in addition to the rate-of-land-tax - Dissuading people from trying to avoid grouping and the subsequent additional land tax that comes with it.

Some perspective.
Land tax is payable annually on every parcel of land in South Australia. This means the land value that each property sits on. There are some exceptions though, including a person's principle place of residence for one. So, as an example:

  • Person with only one property (principle residence) - No land tax.
  • Person with two properties, principle residence and one investment property worth $400,000 land tax is $45.
  • Person with principle residence plus other property worth $600,000 the land tax would be $1,045.
  • Person with principle residence plus other property worth $800,000 the land tax would be $3,011.
  • Person with principle residence plus other property worth $1,000,000 the land tax would be $6,311.

Kind of scary numbers huh? You can see how it compounds the greater the worth, $600,000 to $800,000 is a huge difference in the tax as you can see. And this is the current land tax scenario. The proposal above will see it increase dramatically.

A little more perspective
I have a client who has an annual land tax bill of many-millions of dollars a year. Yes, he own's a lot of property here...All under different entities, so you can imagine how he is responding to the government's proposal and the prospect of his land tax bill doubling or more.

Even more perspective
Currently if a property is owned by an entity, essentially a company set up for the single purpose of owning that property, and that entity only holds the one single property then it would be partially-exempt. That's why any serious property investor sets up a company for each property acquired, to separate them. Under the new proposal though, the government would have the power to "see through" that company to the beneficial owner(s) and group all the property they had together so the greater amount of tax applies. It will be interesting to see how this works out in respect of shareholders in companies I think.

Can you see the issues being faced by land owners, large and small alike? This affects everyone with multiple properties - And everyone in general indirectly to be honest.

What do these changes really mean

  • Legal changes permitting the government to group related entities* for tax purposes.
  • Properties to be aggregated on a land owners' interest in every piece of land they hold an interest in, rather than only aggregating those held under the same ownership structure.
  • RevenueSA to receive additional authority to ascertain and determine the "true owner" of every piece of land/property that are acting together or have an overarching controlling interest. More power to snoop.
  • A surcharge will be imposed on land owned in Trusts where the Trust Beneficiaries are not identified or disclosed.

Why are they doing this?
The government want to facilitate competitiveness within the tax system, ensure equality among taxpayers and seeks to be fair and impartial. (Hmm...)

The State Government estimates that it will raise around and additional $120,000,000 over the first three years of introduction however industry sources feel that figure is grossly under-quoted and that the real figure could be over $100,000,000 more revenue per year.

Implications
It's expected that those with a property portfolio of 2-3 properties could see an increased land tax bill of around $5,000 per property annually and those with larger portfolio's will see a much greater increase.

It means landlords will try and pass some of that on to tenants. Residential tenants may see increases in weekly rents and commercial tenants the same plus additional outgoings-costs which in commercial properties can be passed to the tenant. I have already heard business owners talk about letting staff go to balance the cost which has implications in itself. There is talk about increases in the cost of consumer goods also, again, with future implications for everyone. So this isn't just a problem for the privileged property owner.

Other owners are talking about selling however with a flood of commercial and residential property to the market prices will come down, simple supply and demand...And who is there to buy it anyway with the new (proposed) land tax law? Some surely, but not a lot - Maybe just the very rich, super funds and consortium's? Maybe no one.

It's easy to say something like, "just buy crypto", but in truth this situation affects everyone here in South Australia, directly or indirectly, investor, property owner, non-property owner...Everyone in general. It's not just about where do I invest and a massive exodus from property ownership will come with its own issues.

The pressure this proposal may force onto landowners will undoubtedly spill-over to the greater population through increased costs for everyday items, or reduced quality of them, and services. This can also have the affect of increasing the crime rate, shifting people into it, or increasing the severity of petty crime to more serious incidents, which increases insurance claims and in turn insurance premiums...It's all inexorably linked. Surely unemployment will result.

At this stage the Land Tax Aggregation Bill has not been tabled or voted in Parliament. There's a process for Legislation to come into being and it must go through the House of Assembly [47 Members with 50% in favour required] and Legislative Council (Upper House) [22 Members] so the proposal has a journey to make, however every indication is that it will push through meaning massive changes for property holders here, and the greater population in time.

Governments generally act with a degree of impunity and in my opinion only a few in the general population really understand the impact of those decisions. In election campaigns promises are made, only to be broken later, projects are announced only to be vetoed later and yet others are pushed along to the amazement (bemusement) of all and sundry with seemingly no thought as to the ramifications, or greater benefit or downside.

The State of South Australia has taken a severe hit in the last five years with many industries and business's either being sold out, closed down or downsized - The GM-[Holden auto-plant comes to mind [4,000 jobs]...Arnott's [120 jobs], Aldinga Turkey's [79 jobs], ACI [60 jobs], SA Caroma Industries [76 jobs], Arrium (mining) [600 jobs], BHP Billiton [470 jobs, Santos [300 jobs], ASC (Warship construction) [120 jobs], Alinta Energy [440 jobs], SA Pathology [332 jobs], Adelaide Uni [200 jobs]...I could go on...and on...Yet only recently politicians gave themselves a pay rise of between $4,000-$8,000 annually - Sucks to be us I guess. Way to kick-start the economy huh? [Sarcasm, in case you didn't recognise it.]

Anyway, if you got through to here good on you. This is really only South Australian focused however I'd bet a politician's annual salary that similar things are happening all over the country, and world. What's the answer? I don't know. Certainly the buy crypto thing isn't really applicable here as this issue affects us in ways crypto can't really mend. It can't be eaten, nor can a house be built out of it...As much as people want live in the cyber-world like in the movie Tron, it's just not possible. The world needs real-world answers and that's what I am unable to provide unfortunately - And I suppose I'm not unique in that; What is the answer and who has it?

This aggregation proposal, added to the Valuer Generals process of re-valuing property across the State, means a completely different property and tax environment which will included greater tax, council rate, water and emergency service levies at the very least - It is certain to cause some issues for many already at the edge of financial affordability.

I'm a property owner here and I am considering options, costs, benefits, downside, risk and ultimately the future...I believe if a person owns property here, property that may incur land tax, and they are not deliberating then they should. This Bill may not push through, but this is the second attempt to get something like this through and the industry believes it's a matter of time before this Bill, or something like it, pushes through and springs into life.


Design and create your ideal life, don't live it by default
Discord: @galenkp#9209 🇦🇺

Image is mine, taken by the Torrens Lake in the centre of Adelaide.

Disclaimer: None of the information or figures in this post are designed to be advice or should be relied upon for financial decision-making. You are encouraged to do your own research and seek further information prior to making any decisions on investment, or financial, matters.

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So if I run a meth lab out of my house; my costs won't increase at all; but if I buy up some equity in a couple of struggling local vineyards; then I'm paying through the nose. Sounds about right.

That's pretty much the case. Valuer General is re-valuing and that's going to push costs up significantly as mentioned, add in some land tax reform...Might be a few turning to meth production to put food on the table.

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I haven't seen it, but have you been watching Breaking Bad?

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I did watch it a few years back. I did my normal trick. A series will be 3 seasons deep, and I get sick of hearing how great it is. I sit down and watch all 3 seasons; then completely forget to watch seasons 4-7. So I've seen most of Breaking Bad; and most of Sons of Anarchy.
Then Steem came along and I don't know the last time I watched a TV episode from start to finish.

Angel and Shaun were watching it on Stan while we were at gym. Her free trial ran out though. I'm not sure how far in they got, but I'm worried it's given her ideas...😅

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It's the politician's fault for trusting the bureaucrats that come up with this shit. All yes men. No independent thought.

Hmm, yeah I guess. Line their pockets as they know they won't be there for long...But this one is an oddball and somewhat disturbing.

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Not everyone can look at the bigger picture. We look at the dirt we'd like to bury them in, they look at the canapes in skyscrapers built on formally public land (imbued in highly flammable cladding).

It's all good, right?

You need to watch the Show "Utopia" on ABC iView. It's a startlingly accurate reflection of office life, and what life is like in "government" (coming from someone who worked in local government once upon a time for a very short period). :)

I might check it out, but is there Vikings in it? That shit captures my attention like no other thing can. 😁

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The first 20 mins of American Gods would fit the bill. Pretty full on though; maybe when Faith isn't around.

:)

No vikings. It will make you want to become one and storm the local government offices, though.

Haha, I wanna do that already! I know I can rely on you and your axe to join the shield wall.

Skol!

Far out do government's actually every consider the flow on affects of these decisions I don't think so😠. Thanks for the very interesting information.

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I think it's a matter of them doing what they see is right for them in the short term. To be honest we (the property industry) can't really work out quite what they're thinking. Still, there's every indication that this will push through in some format at least. I don't know, people smarter than me must know something I don't.

It's an issue though, will be, moving forward.

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Nothing certain except death amd taxes! This takes it to a new level!

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Yes, this is a bit of a conundrum. It'll work out for some, and not for others.

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I just read that whole thing and good on me indeed! Lol

I think you summed it all up with the concept of “few know what’s going on”. I find most take a strong stance based simply on their peers or even just news headlines. Never really diving into any subject deeply. Even educated cool headed people cannot keep track of all the tendrils of government or even large groups.

I think also it’s an issue of scale, people don’t scale well.

It’s why I don’t identify as human anymore....I just let them do their thing and I Watch it like a reality tv show. One thing history has taught me is humanity always gets exactly what it deserves.

Congratulations, I thought I'd be the only one to read it all...Considering I wrote it. So yes, it's all a little bit wacky and governments are specialist when it comes to wacky things...And hiding the wacky things they do. This is not hidden though, and despite industry pressure the government seem not to be backing down.

Anyway, thanks for reading it...At least someone did. Still, a post like this probably just proves that I'm here because I enjoy writing and thinking etc. I figured no one would read it. So thank you. :)

Yea I read your stuff and think, here is a reasonable man who takes an intelligent approach on the world......poor guy.

But good stuff, I enjoy little snippets of info from around the world like this. One of things I enjoy about steem is all the diff folks it brings to one place.

Yes, my blog tends towards the eclectic, certainly as far as topics go anyway; Very varied over the couple of years I've been around. Keeps it interesting and sometimes I may even say something that resonates with a person.

Thanks for reading. I appreciate it.

Every political regulation is unfair and biased. Your prior tax policy benefited those who hold real estate as wealth generating vehicle over other asset classes. The reform law merely shifts wealth advantages to different classes from real estate. All human sociopolitical arrangements are arbitrary and unfair. Political winds shift, and rather than attempting to "fix" society and politics, those who can change according to the new political trends survive modern economic landscape.

Yes, change is constant and one must keep up or get left behind.

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4000 jobs lost was purely for the Holden plant alone. When you take into account all of it's suppliers, I think the number was well over 10,000 for SA alone.

You're so right, that it's not just property owners who will be affected. People are often too quick to jump on the idea of the rich getting taxed more, but it will always come back around to the little guys. Up taxes for businesses and they'll pass the cost along or go under; either way it makes no improvement to the situation. As more and more people end up on welfare, the government needs to find other ways to bring in taxes to pay for it (because those people aren't paying anything any more) and to cut more payments going out. All it does is put more pressure on those at the bottom to cough up more. Ironically, if someone on welfare is renting, then that is being paid for by welfare too. In those cases the landlords are just increasing their costs by pulling it back out of government.

If government wants a lucrative cash cow to tax, it needs to stop shooting itself in the foot. They're so focused on how to get more taxes and how to make sure no-one can fly under the radar, that they're missing the fact that no money to circulate is ultimately going to mean no money for taxes. Or maybe that is the point. Collapse the system sooner rather than later.

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I worked at the GM plant from 1989 for 14 years and there was 5,500 people when I was there. You're right about the flow-on job losses except the number was put at 20,000!...Just seemed more words for my blog that was already too long.

As someone who has worked in the property industry now since 2002 I can say this is one of the most destructive tax hikes the industry has faced. If it pushes through there will be pain. Loads of it.

Thanks for your comment as always.

😲 20,000! No wonder Centerlink is so busy!

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Yep, with all the suppliers losing contracts etc. The decline started long before the eventual shutdown.

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