When it comes to investing in the Australian commercial and residential property market, land tax has always been a frustrating topic. Every state has a different set of rules, which leaves both first time and long-time investors scratching their heads.
While a uniform set of rules and taxation levels would seem logical and ensure that investors don’t begin favouring or avoiding investment in a particular state, Victoria has made changes in 2024 that have seen it diverge further.
In this article, we’ll take a step back and explain what land tax is and how it is calculated across each of Australia’s states and territories.
Land tax is a state or territory tax calculated on the total value of land you own. It's an annual tax, but it's important to note that it doesn't apply to all properties.
The principal place of residence (your home) is generally exempt from land tax, as are some primary production lands and properties owned by charitable organisations. However, investment properties, holiday homes, and vacant land are typically subject to land tax.
The calculation of land tax varies by state or territory, but it typically involves the following steps:
It is worth noting that every state has a different ‘Taxing Date’ , which is the date that all the non-exempt land you own is assessed for the purposes of issuing a land tax assessment.
A ‘clearance certificate’, sometimes with the ‘property’ or ‘land tax’ prefix, is a document for property transactions that is typically requested by solicitors or conveyancers during the settlement process. It provides information about any outstanding land tax obligations on a property and ensures that the buyer is not liable for any unpaid land tax by the previous owner.
The ‘Valuer-General’ in each state determines the value of your property for the purposes of several charges and taxes, including local council rates and land tax.
Exemptions to land tax can vary significantly by state or territory but generally include:
At LongView, our property managers and buyer’s advocates work with thousands of landlords across Australia. Over lunch, they can often be heard exchanging notes on how to explain to their first time investor clients how each of the states calculates land tax.
While there are many more moving parts to accurately calculating land tax on a specific property, we’ve summarised the basics below .
Land tax in Victoria
Land tax in Victoria is calculated on the total value of all taxable land you own. The rates are progressive, starting from a tax-free threshold of $50,000 for general land. The rates increase to a maximum marginal rate of 2.65% as the land value increases. There are different rates that apply to trusts.
It is also worth noting that there are myriad of other surcharges, including the COVID-19 Debt Levy, Absentee Owner (Surcharge) Rate and the Vacant Residential Land Tax Rate.
The taxing date is 31 December each year and you find out more about land tax in VIC here.
NSW applies a progressive land tax system with a tax-free threshold of $1,075,000 as of 2024. Above this, the rates start at $100 plus 1.6% of the land value above the general threshold. This increases to 2% for land valued over $6,571,000, which is known as the premium threshold.
The taxing date is 30 June each year and you can find out more about land tax in NSW here.
Queensland’s land tax rates are tiered on the total value of your taxable land. The general threshold is $600,000, with a separate threshold for companies and trustees at $350,000. The rates range from 1% to 2.75%, with additional surcharges for absentee owners and foreign investors.
The taxing date is 30 June each year and you can find out more about land tax in QLD here.
South Australia has a tax-free threshold of $668,000. Above this, land tax is calculated at progressive rates starting from 0.5% and increasing up to 2.4% for land values exceeding $2,500,000.
The taxing date is 30 June each year and you can find out more about land tax in SA here.
In Western Australia, the tax-free threshold is $300,000. Above this, rates range from 0.25% to 2.67%, with higher rates applied to land owned by non-residents and special trusts.
The taxing date is 30 June each year and you can find out more about land tax in WA here.
Tasmania has a tax-free threshold of $100,000. Above this, land tax is calculated at progressive rates starting from 0.45% and increasing up to 1.5% for land values exceeding $500,000.
The taxing date is 30 June each year and you can find out more about land tax in TAS here.
The ACT has progressive land tax rates based on the unimproved land value. The rates start at a fixed charge of $1,535 plus 0.54% for land values up to $150,000, increasing to a maximum of 1.14% for land values over $2,000,000.
The ACT land tax system breaks the year into quarters, meaning there are four Taxing Dates each year. You can find out more about land tax in the ACT here.
The Northern Territory does not impose land tax.
Impact of land tax on investment returns
Land tax can significantly affect the profitability of investment properties. It's essential to factor in land tax when calculating your expected returns. This includes understanding how land tax liabilities might change with property value fluctuations and potential future increases in tax rates or changes in thresholds.
How to estimate land tax before buying an investment property
As detailed earlier in this article, a clearance certificate is a document provided by the relevant revenue office of each state prior to a property being sold. This document details the amount of land tax payable on the property you are considering purchasing.
Alternatively, you can use the relevant state’s own land tax calculator. You can find a link to them below:
Planning for land tax
Strategic planning can help manage land tax liabilities. This may involve:
Consulting professionals
Given the complexity and variability of land tax laws around the country, it is important to consult with tax advisors, property consultants, and legal professionals, so you can get advice tailored to your specific circumstances.
While this may seem like another cost, it will likely save you money in the long term, as these experienced professionals can help you select a higher quality property up front, both in terms of its fundamentals and any land tax obligations. They will also keep you compliant with all relevant regulations.
Understanding land tax is crucial for property owners and buyers to avoid unexpected costs and ensure compliance. Each state and territory in Australia has its own rules and rates, making it essential to stay informed about the specific requirements in your area. By knowing how land tax is calculated, what exemptions apply, and how to estimate your liabilities, you can make more informed property decisions and strategically plan your investments.
