Business SA: Land tax damage ahead
The trifecta of land tax issues, including planned changes to aggregation laws, have created a black hole of uncertainty and sent shockwaves through the SA community.
Business SA represents people in almost every industry sector in South Australia.
If you were a business owner thinking about preparing for your retirement, what would you do?
Most would consider property investment, shares or boosting their superannuation. It sounds simple.
But the trifecta of land tax issues, including planned changes to aggregation laws, have created a black hole of uncertainty and sent shockwaves through the community, including mum-and-dad investors.
Many people are now questioning how they have legitimately and legally structured their assets and whether they should sell immediately.
Some have told Business SA that they’re considering moving interstate.
The reasons for investing in commercial and residential property are varied. A manufacturing business is more likely to own its factory and fit it out to meet its own needs, while, for a retailer, it might be to secure a prime location to attract clientele.
For business operators, owning property can be an aspiration and provides security for when times are tough or if the business needs collateral to borrow against to fund an expansion. Buying property can also allow a business owner to diversify revenue streams.
Business owners often hold land in separate legal entities for a range of different reasons, including asset protection, succession planning, partitioning of subsidiary businesses, retirement planning and tax minimisation.
Whatever those reasons, many owners are worried their finances are about to take a significant hit.
In a recent Business SA survey, 60 per cent of the owners and operators who took part said they would be affected, and 76 per cent of those said they would be forced to sell their commercial or residential properties as part of an asset restructure under the proposed land-tax changes.
Combined with the Valuer-General’s revaluation process, which is showing a median site value increase of between zero and 10 per cent, businesses are telling us they cannot afford to absorb these costs.
They’re saying residential and commercial property markets will freefall, with fire sales across the state. Owners are putting developments worth millions of dollars on hold because of the uncertainty. Landlords will pass costs on where possible and tenants will suffer from increased rents.
Not since Labor’s planned bank tax have we seen such a significant threat to our state’s economy. Business confidence has fallen for two quarters. Owners and operators need certainty, and without that, they stop spending, investing in equipment and upgrades, and they’re unlikely to employ that extra apprentice or casual.
Land-tax aggregation changes aren’t just threatening the big end of town, they’re threatening mum-and-dad investors with two properties, business owners with a factory and retail outlet, and rental and retail tenants across the state.
Reducing the top rate from 3.7 per cent to 2.9 per cent over seven years is but a small concession, and it still leaves us lagging behind the other states.
If we want to keep our SMEs in South Australia, we must create a competitive tax environment which makes investing here worthwhile. At the moment, it’s not.
Business SA is calling on the government to set aside any aggregation measures until the revaluation initiative is complete so that it can fully understand the impact that it will have on South Australia.
Martin Haese is chief executive of Business SA.