Land tax and trusts: what it does to your holding costs

New South Wales: a discretionary trust is a special trust with no threshold, so land tax applies to the full taxable value at the general rate. Fixed unit trusts that meet the legislative test are treated like individuals. Queensland: trusts have a lower threshold than individuals and are taxed at the company and trust rates. Victoria: trusts pay a surcharge rate on land above a low threshold, higher than the general rate, unless a nomination is made for certain trusts. Other states have their own rules, and some do not levy land tax on residential investment at all. The rules change at state budgets, so check the current figures before deciding.

An investor in New South Wales holding $1,500,000 of taxable land value across two properties in a discretionary trust pays land tax on the whole amount, where the same land held personally would sit under or near the threshold and attract little or none. The difference can be several thousand dollars a year per property. Investors who hold land in multiple states are assessed separately in each, which is one reason portfolios spread interstate.

Land tax is an ownership expense and lenders include it in the assessment of the investment, alongside rates, insurance and management. A trust paying land tax from the first dollar has a lower net rent in the lender's calculation than an individual with a threshold, which slightly reduces borrowing capacity. Lenders will ask for the land tax assessment notice as part of the trust's financials.

Hold the first properties personally up to the threshold and use a trust once the threshold is exhausted, where negative gearing and protection allow. Use a fixed unit trust in New South Wales where the individuals would have had a threshold. Spread across states. Or accept the cost as the price of asset protection. The decision is your accountant's to model; the finance follows it.