Like it or not, land tax is something each and every property investor needs to be aware of.
Unlike stamp duty which is a one-off cost when you purchase a property, land tax is an ongoing tax land owners pay to state and territory governments on a quarterly or annual instalment, based on the cumulative total value of the land they own. It applies to freehold land everywhere in Australia, except for the Northern Territory.
Land tax is levied on any land either owned or co-owned above a certain value threshold. That threshold varies from state to state. It includes both vacant land bought to construct on, or the land an existing house or unit is built on.
Typically a principal place of residence is exempt from the tax, meaning land tax is really only a concern for property investors.
For example in Victoria, which has a sliding scale for the value of land owned above $250,000. If the total value of the investment land that you own is $1 million, it will currently costs you $2,938 per year. In NSW, the same size holding equates to $4,020 a year.
The value threshold and the percentage charged varies from state to state, therefore the amount of land tax payable varies from state to state as evidenced above. There are often tiers as well, like general and premium thresholds, which will also impact how much is charged overall.
For example in NSW, the current general threshold for paying land tax is $755,000. If a property investor is above this threshold, they pay $100, plus 1.6 per cent of land value above the threshold. On a $1 million landholding, this equates to $4020 a year. For a $5 million holding, which is defined as being premium in NSW, the land tax is $67,844. And yes, that’s per year!
In Victoria, land tax doesn’t apply to your principal place of residence, primary production land for farming or for land owned below the $250,000 threshold. There are some other specific exemptions.
Land tax in Victoria is calculated at the end of the calendar year, on the total value of all taxable land above the threshold, which hasn’t changed since 2009.
The threshold for land in Victoria operates on a sliding scale for land above $250,000. Although if the land is held in a trust the threshold is only $25,000. The scales are as follows:
$250,000 to less than $600,000; $275, plus 0.2 per cent of land value above $250,000;
$600,000 to less than $1m; $926, plus 0.575 per cent of land value above $600,000;
$1m to less than $1.8m; $2938, plus 0.875 per cent of land value above $1m;
$1.8m to less than $3m; $15,838, plus 0.7614 per cent of land value above $1.8m;
$3m-plus; $24,975, plus 2.25 per cent of land value above $3m.
Additional premiums are payable for land held by a trust, on a similar sliding scale. There’s also surcharges for other types of landholders, including absentee owners.
The good news is that land tax is in fact tax deductible. After you’ve completed a land tax registration form, you will be sent an assessment notice showing the land tax payable on the land you own.
If the property is a rental properly, you are only able to claim a deduction for land tax expenses if you incur them and that they are not paid by the tenant. However, since July 1, 2019, you can no longer claim a tax deduction for vacant land as it isn’t income producing.
Because tax deductibility is managed by the ATO, the same rules apply in all states and territories. Speak to your accountant for the full run down on land tax and how it applies to your individual situation.
Luke Jorgensen - Lush Property
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