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Land tax: Are you liable and how much are you liable for?

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.

Lad tax is determined by the value of the land that has not been modified. Lad tax is determined by the value of the land that has not been modified.

What is land tax and who needs to pay it?

When you own land, there are certain obligations you need to face, one of which is land tax. Land tax is an annual tax that is paid to the state and territory government across the country except for the Northern Territory. The laws between states are similar but vary slightly.

Broadly, it's a tax charged on any land you own or co-own above a certain value threshold (which depends on your state). This includes vacant land you've bought to build on, or the land on which the house or unit you've bought is already built.

As a 'principal place of residence,' your home (i.e., the property you own and live in) is generally exempt from land tax.

Land tax is levied at the end of either the financial or calendar year, depending on your state or territory.

How is land tax calculated?

Land tax is calculated based on the "unimproved value" of the property. Unimproved value is the market value of the land that has not been altered by human intervention, e.g. structural improvements, clearing, levelling, fencing, etc. Every year, state government valuers determine the assessable value. When land is judged for value, there are a few considerations:

  • Physical attributes of the land (i.e. slope of the land, shape, size and views).
  • Land zoning based on the relevant planning scheme.
  • Recently sold properties in the area.
  • Property market research.

Every state calculates land tax differently; however, they all use a threshold figure when making their assessment. Only total land over the threshold is assessed.

For example, in New South Wales (NSW), the tax-free threshold is $822,000. If you had a total assessable land value of $1 million dollars, the calculation at the rate of 1.6% plus $100 is assessed on $178,000.

Please note, this is based on land owned by an individual.

Nuances in property tax liability

There are a few nuances to land tax that you should also be aware of such as what type of entity that owns the land may affect how land tax is assessed. For example, in NSW, if the land is held by a trust, you may lose the tax-free threshold altogether depending on the type of trust you own such as special or fixed, superannuation or concessional.

Similarly, when someone controls multiple properties, with multiple proprietors, tax needs to be settled differently as well. In NSW, for instance, this type of land will be assessed first by the joint ownership and then by the individual's share. The individual's other landholdings will also be evaluated separately thereafter.

An owner of land can include a person with:

  • A legal entitlement to the land that has possession.
  • Entitlements to rent and profits to the land.
  • Beneficiary benefits, life estates, deceased estates or finance arrangements.

Additionally, land tax rates can sometimes depend on other factors:

  • Absentees, or foreign individuals who do not live or are not residents of Australia.
  • Companies domestic and foreign.

Understanding how you qualify and if you need to apply for land tax will save you from incurring penalties for neglecting your taxes.

Paying land tax 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. Contact us today for a consultation.