What is land tax? – realestate.com.au

Like it or not, land tax is something all property investors need to know about.

Unlike stamp duty, which is a one-off amount paid when buying a property, land tax is an annual or quarterly tax owners pay to state and territory governments, based on the vale of the land they own. It applies to freehold land everywhere in Australian, except for the Northern Territory.

Land tax is charged on any land owned or co-owned above a certain value threshold. That threshold is different in different states. It includes vacant land bought to build on or the land a house or unit is built on.

Generally speaking, a principal place of residence is exempt, meaning land tax is predominantly a concern for property investors.

Dr Diaswati Mardiasmo, chief economist for PRD, explains because thresholds and rates vary in different states, how much land tax costs varies.

For example, in Victoria, which has a sliding scale for land valued above $250,000, a $1 million landholding currently costs the owner $2938 a year. In NSW, the same size holding equates to $4020 a year.

How much is land lax?

The value threshold and percentage charged differs from state to state, so the amount of land tax payable varies. There are often tiers as well, like general and premium thresholds, which also impact how much is charged.

In New South Wales for example, 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 premium in NSW, the land tax is $67,844.

New South Wales

Dr Mardiasmo says in New South Wales, land tax doesn’t apply to a principal place of residence, primary production land for farming or for land owned below the threshold.

Land tax in NSW is calculated on the total value of all taxable land above the threshold at the end of the calendar year. The thresholds for land values change each year. This financial year, the land tax thresholds are set at $755,000 for general and $4,616,000 for premium.

The general threshold equals $100, plus 1.6 per cent of land value above the general threshold, up to the premium threshold. The premium threshold is $60,164, plus 2 per cent of land value above the premium level.

“Using current rates, a non-exempt $1 million general landholding would cost a landholder $4020, while a non-exempt $5 million premium landholding would cost a landholder $67,844,” Dr Mardiasmo says.

Buyers may pay land tax – not stamp duty – in NSW soon

The NSW government recently unveiled a controversial plan to replace stamp duty with an annual land tax. While it’s still a proposal, it means first home buyers, like all buyers, may pay land tax, not stamp duty.

Dr Mardiasmo says the idea is to eliminate the “hurdle of stamp duty”, which can be a significant chunk of money, in favour of more “bite-sized” payments over the duration of home ownership.

“Many first home buyers pause their purchase decision making due to having to pay the significant chunk of money upfront, paying less annually means the cost is spread over numerous years,” she says.

Victoria

As in NSW, in Victoria, land tax doesn’t apply to a principal place of residence, primary production land for farming or for land owned below the threshold. There are 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 haven’t changed since 2009.

Dr Mardiasmo says the threshold for land in Victoria operates on a sliding scale for land above $250,000 or $25,000 for trusts. They include the following.

• $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.

“Using current rates, a non-exempt $1m landholding would cost a non-trust landholder $2938, while a non-exempt $5m landholding would cost a non-trust landholder $69,975,” she says.

Queensland

In Queensland, land tax doesn’t apply to a principal place of residence, primary production land for farming or for land owned below the threshold. There are other specific exemptions. And it’s calculated on June 30.

Dr Mardiasmo says the threshold for land operates on a sliding scale for land above $600,000 or $350,000 for absentees, companies and trustees of trusts and superannuation funds. They include the following.

• $600,000 to less than $1m; $500, plus 1 per cent of land value above $600,000;
• $1m to less than $3m; $4500, plus 1.65 per cent of land value above $1m;
• $3m to less than $5m; $37,500, plus 1.25 per cent of land value above $3m;
• $5m to less than $10m; $62,500, plus 1.75 per cent of land value above $5m;
• $10m-plus; $150,000, plus 2.25 per cent of land value above $10m.

Varying rates are payable for land held by non-individual owners including trusts, companies, superannuation funds, foreign ownership etc, she says.

“Using current rates, a non-exempt $1m landholding would cost an individual landholder $4500, while a non-exempt $5m landholding would cost a non-trust landholder $62,500.”

South Australia

In South Australia, land tax doesn’t apply to a principal place of residence, primary production land for farming or for land owned below the threshold. It’s calculated on June 30.

After changes introduced last year, land tax in South Australia is calculated according to the ownership of each parcel of land, with land grouped by ownership.

Dr Mardiasmo says if the combined taxable site value for an owner’s land doesn’t exceed $450,000, they don’t pay land tax. The following brackets then apply.

• exceeds $450,000, but not $723,000; 50c for every $100 or part of $100 above $450,000;
• exceeds $723,000, but not $1,052,000; $1,365.00, plus $1.25 for every $100 or part of $100 above $723,000;
• exceeds $1,052,000 but not $1,350,000; $5,477.50, plus $2 for every $100 or part of $100 above $1,052,000
• exceeds $1,350,000; $11,437.50, plus $2.40 for every $100 or part of $100 above $1,350,000.

“Land you hold on trust may be taxed at the trust land tax rates, which includes a surcharge of up to 0.5 per cent on the general land tax rates and a lower threshold of $25,000,” she says.

Using current rates, a non-exempt $1m landholding would cost an individual landholder $4827.50, while a non-exempt $5m landholding would cost a non-trust landholder $99,037.50.

Western Australia

As in other states, Western Australia doesn’t apply the tax to a principal place of residence, primary production land for farming or for land owned below the threshold. There are other specific exemptions. It’s calculated on June 30.

• The threshold for land operates on a sliding scale for land above $300,000 and is reviewed annually. Dr Mardiasmo explains the current brackets.
• $300,000 to less than $420,000; $300 flat rate;
• $420,000 to less than $1m; $300, plus 0.25 per cent of land value above $420,000;
• $1m to less than $1.8m; $1750, plus 0.90 per cent of land value above $1m;
• $1.8m to less than $5m; $8950, plus 1.80 per cent of land value above $1.8m;
• $5m to less than $11m; $66,550, plus 2 per cent of land value above $5m;
• $11m-plus; $186,550, plus 2.67 per cent of land value above $11m.

There is also a “metropolitan region improvement tax” on all taxable land within Perth’s metropolitan area. This is imposed at a rate of 0.14 per cent for every dollar over $300,000.

“Using current rates, a non-exempt, non-metropolitan $1m landholding would cost a landholder $1750, while a non-exempt, non-metropolitan $5m landholding would cost a landholder $66,550,” she says.

Northern Territory

The Northern Territory does not charge land tax.

Australian Capital Territory

The ACT doesn’t apply land tax to a principal place of residence, primary production land for farming or for land owned below the threshold. There are other specific exemptions.

Unlike other states that assess land tax each financial or calendar year, in the ACT, it’s assessed on a quarterly basis on January 1, April 1,  July 1 and October 1 each year, Dr Mardiasmo explains.

It’s made up two components: a fixed charge of $1326 and a valuation charge (AUV), which is calculated based on the average unimproved valuation of the land over the past four years. The brackets are as follows.

• Less than $150,000; 0.52 per cent of AUV;
• $150,000 to less than $275,000; $780, plus 0.62 per cent of AUV above $150,000;
• $275,000 to less than $2m; $1555, plus 1.1 per cent of AUV above $275,000;
• $2m-plus; $20,530, plus 1.12 per cent of AUV above $2m.

The taxable land value is divided into quarters and is payable accordingly. Rates payable are also varied on land by property and usage type and by foreign ownership status.

“Using current rates, a non-exempt $1m AUV landholding would cost a landholder $2714 per quarter, $10,856 per annum, while a non-exempt $5m AUV landholding would cost a landholder $13,864 per quarter or $55,456 per annum,”

Tasmania

As in other states, in Tasmania, land tax doesn’t apply to a principal place of residence, primary production land for farming or for land owned below the land tax threshold. There are other specific exemptions. It’s calculated on July 1.

Dr Mardiasmo says land tax in Tasmania is calculated on the total value of all taxable land above the land tax threshold, which haven’t changed since 2010.

The land tax threshold is $25,000 and has a number of brackets.

• $25,000 to less than $350,000; $50, plus 0.5 per cent of land value above $25,000;
• $350,000-plus; $1,837.50, plus 1.5 per cent of land value above $350,000.

“A non-exempt $1m landholding costs a landholder $11,587.50, while a non-exempt $5m landholding costs $71,587.50.”

Is land tax deductible?

Land tax is tax deductible. “Once 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,” Dr Mardiasmo says.

“If the property is a rental properly, you can only claim a deduction for land tax expenses only if you incur them and they are not paid by the tenant. Since July 1, 2019, it’s no longer possible to claim a tax deduction for vacant land.”

Because tax deductibility is managed by the ATO, the same rules apply in all states and territories.

What property types do you need to pay land tax?

Land tax is usually applicable to rental and investment properties, commercial properties, factories, holiday homes, vacant land and other non-exempt land.