How is land tax calculated?

August 13th, 2024 Taxation News and Advice

Purchasing property is an exciting step. However, there is a state tax that you need to be aware of called land tax. This article will uncover what is considered liable for land tax, who needs to pay and the nuances you need to know along the way.

Introduction to land tax

Land tax is an annual state and territory tax in Australia, levied on the unimproved value of the land you own. Unlike income tax — which is paid to the federal government — land tax is collected by the government of the state or territory where the property is located. This tax is relevant for property owners because it applies to any land you own that exceeds a certain value threshold, which varies depending on the state.

Land tax can significantly impact the cost of holding real estate which is generally calculated based on the land’s market value, excluding any buildings or improvements. This means that the tax is determined by the “unimproved value” of the property.

Who needs to pay Land Tax?

Land tax is typically levied on individuals, companies and trusts that own or co-own land. It applies to various property types, including vacant land, investment properties and land with houses or units built on it. However, certain properties, such as your principal place of residence, are generally exempt from land tax.

It’s also important to note that land tax is not imposed uniformly across Australia. Each state and territory has its own set of rules, rates and thresholds, affecting how much you owe and when you need to pay it. For example, the Northern Territory does not levy land tax, making it an exception. In other regions, land tax is calculated and paid annually, either at the end of the financial year or the calendar year, depending on the state’s specific regulations.

Understanding these variations is essential for property owners, as your land tax liability will differ based on where your property is located. Staying informed about your state’s land tax thresholds and regulations is key to managing your tax obligations effectively and avoiding penalties.

For more information on land tax in NSW, you can visit here.

Land tax thresholds and rates

State/Territory	Tax-Free Threshold	Land Tax Rate	Additional Information
New South Wales (NSW)	$1,075,000	$100 + 1.6% above threshold, 2% for land values above $6,571,000	Premium threshold applies at $6,571,000
Victoria (VIC)	$300,000	Progressive rates up to 2.55%	Includes surcharges for absentee owners and trusts
Queensland (QLD)	$600,000 (individuals), $350,000 (companies/trusts)	1% to 2.75%	Surcharges apply for absentee owners
South Australia (SA)	$668,000	0.5% to 2.4%
Western Australia (WA)	$300,000	0.25% to 2.67%	Includes a metropolitan region improvement tax at 0.14%
Tasmania (TAS)	$100,000	0.45% to 1.5%	Additional surcharge for foreign owners
Australian Capital Territory (ACT)	No threshold	Fixed charge of $1,535 + progressive rates up to 1.14%	Land tax is assessed quarterly
Northern Territory (NT)	No land tax	N/A	The Northern Territory does not impose land tax

Calculating land tax

Land tax is calculated based on the “unimproved value” of the property, which is the market value of the land in its natural state, without any structural improvements like buildings, clearing, levelling or fencing. This value is assessed annually by state government valuers, taking into account several factors:

Characteristics such as the slope, shape, size and views of the land.
The classification of the land based on the relevant planning scheme, which can affect its value and usage.
Comparable properties in the area that have been sold recently are used as a benchmark.
General trends and conditions in the real estate market.

Example:

In 2024, the tax-free threshold in NSW is set at $1,075,000. This means that if your total assessable land value is $1 million, it falls below the threshold, and you would not need to pay land tax. However, if your assessable land value is $1.2 million, you would be taxed on the amount exceeding the threshold. Here’s how the calculation would work:

Total assessable land value: $1,200,000
Tax-free threshold: $1,075,000
Amount subject to Land Tax: $1,200,000 – $1,075,000 = $125,000
Land Tax rate: 1.6% of the amount above the threshold, plus a fixed amount of $100.

So, the land tax payable would be:

Land Tax = $100 + (1.6% of $125,000)
Land Tax = $100 + $2,000
Total Land Tax = $2,100

In this case, you would need to pay $2,100 in land tax for the property valued at $1.2 million.

For a more accurate calculation based on your specific circumstances, you can use the NSW land tax calculator.

Definition of ‘owner of land’

Under state laws, an “owner” can be an individual, a group of individuals with joint ownership, a company or a trust. Each type of ownership has different implications for how land tax is calculated and applied.

For individual owners, land tax is straightforward — you’re responsible for paying tax on the total taxable value of the land. In joint ownership, land tax is assessed based on each owner’s share of the property. This means you’re liable for land tax on your portion, even if the property is shared.

If land is held by a trust or company, different rules may apply. For instance, certain trusts may not qualify for exemptions like the tax-free threshold. It’s crucial to understand how these ownership distinctions impact your land tax liability.

Exemptions and concessions

Certain land is exempt from land tax, helping to reduce your overall tax burden. Some of these key exemptions in NSW are:

Primary residence.
Agricultural land.
Boarding houses.
Low-cost accommodation.
Residential and caravan parks.
Retirement villages and nursing homes.
Childcare centres.
Non-profit organisations.
Crown or council land.
Societies, clubs and associations.
Surcharge land tax exemptions.

To apply for exemptions, start by obtaining the necessary application forms from the state revenue office. Gather all required supporting documents, such as utility bills for a primary residence exemption, business records for agricultural land or proof of use for boarding houses and childcare centres. Be sure to submit your application before the state’s deadline to secure your exemption.

For more detailed advice on reducing your tax obligations, including for high-income earners, check out our guide here.

Compliance and penalties

Failing to pay land tax on time can lead to significant penalties. If you miss the payment deadline, interest is typically charged on the outstanding amount, calculated daily from the due date until the tax is paid. The interest rate usually includes a market rate, which compensates for the lost revenue, and a premium rate designed to encourage timely compliance.

Moreover, penalties can escalate depending on the severity of the non-compliance. For instance, if you fail to lodge a return or make a payment deliberately, the penalties imposed can be much higher, sometimes reaching up to 90% of the outstanding tax in cases of intentional disregard for the law. Additionally, businesses considered “Significant Global Entities” (SGEs) may face even steeper penalties due to their larger scale.

Here are some tips on how to avoid these penalties:

Maintain up-to-date records of all property transactions and ownership details.
Ensure that you file returns and make payments by the due dates to avoid interest charges and penalties.
Be aware of how your property ownership structure — whether individual, joint or held in trust — affects your tax liability.
If you have multiple properties or if your property ownership situation changes, review your tax status regularly to ensure compliance.

If you believe your land tax charge is incorrect, you can dispute it by lodging a formal objection with the state revenue office. To do this, make sure to include relevant documentation, such as property valuations or proof of exemptions, to support your claim. Typically, you must submit your objection within 60 days of receiving the assessment notice.

Once reviewed, the revenue office may either uphold the original assessment, adjust the amount due or cancel the charge. If you’re not satisfied with the outcome, further recourse may be available through tribunals or courts.

Working with a tax professional

Working with a tax professional can help you navigate all of the nuances of land tax. They can guide you through the categories you qualify for, the state-specific requirements you need to include and how to pay when the financial year is up. From stamp duty to property tax and any new policies that emerge along the way, Wilson Porter is here to help you get the most benefits and pay the right amount when you need to.