What is land tax?
Who should pay it?
Does it apply to my home?
And can I reduce this major property cost which seems to eat into my rental income disproportionally?
These questions are often asked by serious property investors who already have or are in the process of building a significant property portfolio.
What is Land tax?
- Land tax is generally levied on the unimproved capital value of the land (not the total property value).
- Each state has different rules and thresholds of when the land tax will be applied.
- As is the case for most taxes, it is up to the taxpayer to advise the relevant state department that they are subject to land tax based on self assessment by submitting either a land tax registration form or a land tax variation form. This will trigger land tax assessment notices to be issued if and when appropriate.
- Failure to advise can lead to significant penalties and backdated charges which the land owner may not be able to claim as a tax deduction.
- The land you own and occupy as your home is your principal place of residence (PPR) and is exempt from land tax.
- There is a threshold (a dollar value) at which land tax will become payable. Below that figure no land tax is levied and above it land tax commences at the prescribed rates. Most states have escalating rates as the land value increases so it is not proportional.
- In general, there is a different rate and threshold for individuals and companies and a different set of rates for trust – although in some states trusts are treated the same as individuals. The full land tax liability is therefore the land value multiplied by the applicable rate.
What is my property is in the name of more than one entity, for example, a couple?
- land tax threshold is available.
- If either of the persons has land in their own right then at the secondary level only the proportion held together is included when determining the liability in total.
- No credits are available if the total liability at the secondary level is less than paid as a couple.
- For people with access to ongoing income (if negatively geared) it may be better to buy property in just one person’s name in order to get multiple thresholds. Long-term planning is therefore essential.
A land tax trap to watch out for
- Land tax is payable by the current owner and not when it may have been applicable or levied. This can give rise to the new owner being liable for land tax when they did not “own” it.
- When purchasing land or property it is important to apply for a land tax clearance certificate to ensure you will not be liable for someone else’s tax or to give you the opportunity to have any liabilities adjusted at settlement.
Will I pay land tax if I move out of my home?
- The land tax exemption on the family home is only applicable if you are using and occupying the dwelling as your home.
- If you move out and rent the property then you must register for land tax as the dwelling is now an investment. This is even the case if you are using the six year absence rules
- Each State has different thresholds for land value before land tax will the applied. If you are over the threshold (total of all investments) then land tax will be levied.
Do all trusts have a higher level of land tax applied?
- There are different land tax free thresholds depending on the ownership of the dwelling ie land
- Different thresholds apply to individuals and or companies and or trusts with additional surcharges for foreigners and land rich entities.
- Queensland allows each trust with a separate trustee its own trust threshold.
- Other States group all individuals and structures via ownership and or control.
- Self Managed Superfunds are normally treated separately and not grouped with other ownership structures.
Disclaimer: Land tax is a state-based tax and as such any broad article such as this cannot give justice to every detail by state. For more information visit the land tax page on each State Government’s website at business.gov.au.
Always seek advice from a registered tax agent. The information contained in this document is given in good faith and is believed to be correct at the time of publication. No responsibility arising in any other way for errors or omissions is accepted by the author or Property Update
NOW READ: What is Land Tax and can I reduce it?
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