Land tax is a yearly charge applied to any land that you own that exceeds the taxes, duties, levies, and royalties land tax threshold. Your primary residence is typically exempt from this tax, and other exemptions or concessions may also be available. This tax is typically assessed at the end of each calendar year.
Land tax is a tax imposed on the ownership of land, usually calculated as a percentage of the value of the land. The liability for land tax typically falls on the owner of the land as of a certain date, usually the end of the financial year.
The amount of land tax that an owner is liable to pay will depend on the value of the land, the applicable tax rate, and any exemptions or concessions that may apply.
If you are already registered for land tax, you can anticipate receiving a Land Tax Assessment Notice via mail at the outset of the 2023 calendar year. You will have until the first instalment date, which generally falls at the end of February, to inform the Office of State Revenue about any alterations to the Assessment Notice, including modifications pertaining to the land that has been assessed. Certain types of land ownership may qualify for exemptions from land tax in specific jurisdictions. For example, land owned by designated government entities or land used for charitable purposes may be eligible for such exemptions.
How do I know if I need to pay land tax?
Land tax may be applicable if you are the owner or joint owner of any of the following types of land:
Vacant land, including rural land
Land with a house, apartment, or other type of residential unit built on it
A vacation home
An investment property
Company title units
Residential, commercial, or industrial units, including parking spaces
Commercial properties such as factories, stores, and warehouses
Land leased from a government entity
It is important to note that land tax applies regardless of whether any income is generated from the land. There are certain exceptions to land tax, including your primary place of residence, land used for primary production (such as a farm), and land with a taxable value below the land tax threshold.
However, if you are registering as a company or trust, you must call them on 1300 139 816.
How is land tax calculated?
Land tax is calculated based on the total value of all your taxable land that exceeds the land tax threshold, rather than being calculated separately for each individual property. If the total value of your land is below the threshold, you will not be required to pay land tax.
Your land tax liability for a given year is determined by the value of all the land you owned on December 31st of the previous year. Any changes in the land you own during the current year will only affect your land tax liability for the following year.
How is land valued for land tax?
The value of all land in New South Wales is assessed each year by the Valuer General on July 1st. The value determined is the unimproved value of the land, also known as the land value.
The taxable value of a piece of land is determined by taking the average of the current year's value and the values of the two previous years, if applicable. If a parcel of land is less than three years old, such as one created through a subdivision or merger, the values of the years after it was created are taken into account.
What is the land tax threshold and rate calculation in NSW?
The thresholds for land values change annually and are calculated as follows:
$100 plus 1.6% of the land value above the threshold, up to the premium threshold
$79,396 plus 2% of the land value above the threshold.
The thresholds are announced in the government gazette in October of each year and are applied to land holdings as of December 31st of each year. Land tax is applied for the full year following the December 31st taxing date, and there is no pro-rated calculation applied.
FOREIGN PERSONS LAND TAX SURCHARGE
Foreign persons are liable for a land tax surcharge of 4% from 2023 onwards. From 2018 to 2023 it was 2%.
SPECIAL RULES FOR TAX GROUPING
There are special rules for land tax grouping for related entities. For example, one company can be nominated to receive the taxable threshold and subsequent related companies won't be eligible.
What land is exempt from land tax?
There are some properties that may be exempt from land tax. Generally, you will not have to pay land tax on:
Your primary place of residence
Land used for primary production (such as a farm)
Land with a taxable value below the land tax threshold
In order for a property to qualify as your primary place of residence, there are a few general requirements that must be met, such as:
Only one exemption per family is allowed
The property must have been continuously used and occupied solely for residential purposes prior to the taxing date
The land must have been used for residential purposes
The owner must be a natural person
There are also concessions available for the primary place of residence exemption in certain situations, such as when moving between homes, building a new home, handling deceased estates, or renting out a portion of your home.
What if I don't register for land tax?
If you fail to register for land tax, it is likely that this will eventually be discovered by Revenue NSW. If this happens, you will be required to pay all of the unpaid land tax (which could be for multiple years) and may also be charged interest and penalties.
What about joint ownership of property?
Land can be owned by individuals, partnerships (tenants in common), trusts, companies, or self-managed superannuation funds. Revenue NSW handles land tax differently depending on the legal owner of the land.
INDIVIDUALLY, OR JOINTLY AS TENANTS IN COMMON
If you own land individually or jointly as tenants in common, you will be assessed on the taxable value of the land based on your ownership percentage.
If you own 50% of an investment property, you will only be responsible for paying land tax on 50% of the property's value.
You will receive a separate assessment notice for any jointly-owned land.
Natural persons are entitled to the land tax free threshold.
What if I own a property in a company or a trust?
Companies are generally assessed in the same way as individuals, unless they are related to another company.
Trusts will receive a land tax assessment, but not all trusts are entitled to the land tax threshold.
Discretionary trusts (also known as family trusts) are not eligible for the land tax threshold and will have to pay tax on the total value of land owned by the trust.
In general, fixed trusts (also known as unit trusts) are entitled to the land tax threshold.
Once land tax is paid at the trust level, Revenue NSW will issue a further assessment to each unit holder, and the unit holders will receive a credit for any land tax already paid by the trust to avoid double taxation.
How do I find out my land value?
Annually, the Valuer General undertakes the task of assessing the value of all land in New South Wales as of 1 July. This valuation is primarily based on the unimproved value of the land. To calculate the taxable value of each parcel of land, they consider the average value for the current year and the two preceding years, where applicable. It's important to keep your address updated with the Valuer General in case you relocate, as failure to do so may result in late penalties due to land tax notices being sent to the wrong address.
If a piece of land has been created within the past three years, for instance through a subdivision or amalgamation, only the years after its creation will be considered when determining its taxable value.
To discover the average land value in your area, you can use the NSW Valuer General's website, which you can access here. If you happen to disagree with the valuation of your land, you have the option to submit an objection through the NSW Valuer General's website.
Additionally, it's important to be aware of the various terms and concepts related to land taxation, such as land tax thresholds, surcharge land tax, and primary production land, as these factors can impact your land tax liability. In case of any difficulties or if you have been impacted by a recent natural disaster in NSW, please do not hesitate to contact us to discuss your specific circumstances and assess any potential entitlements to a refund or relief from land tax obligations.
Is land tax in NSW tax deductible?
Whether land tax is tax deductible or not depends on your individual circumstances and current laws and legislation.
When you purchase a property, you are required to pay stamp duty. Stamp duty is not tax deductible and is added to the capital gains tax cost base of the property.
In New South Wales, owner-occupiers are not able to claim land tax as a tax deduction, but investors may be able to do so.
What is First Home Buyer Choice?
The Property Tax (First Home Buyer Choice) Act 2022 was passed on 11 November 2022. It gives first-time home buyers the option to either pay upfront transfer (stamp) duty or an annual property tax.
During a transitional period, eligible first-time home buyers will have to pay transfer (stamp) duty, but can apply for a refund of the duty after 16 January 2023 via the Revenue NSW website.
A First Home Buyer Choice calculator is available online that can help eligible NSW first-time home buyers make an informed decision. Keep in mind that this calculator is for informational purposes only and should not replace professional financial or legal advice.
This initiative is in addition to the existing First Home Owner (New Homes) Grant, and the First Home Buyers Assistance Scheme which offers exemptions and concessions on transfer duties.
STAMP DUTY REFORM
Given the extremity of property prices in NSW and the difficulty many first home buyers face trying to enter the property market, the NSW Government (regardless of party) have been making changes to stamp duty in NSW.
CHANGES TO FIRST HOME BUYER CHOICE POST 2023 NSW STATE ELECTION
Under the NSW Government headed by Labor Premier Chris Minns, former Premier Perrottet's First Home Buyer Choice will be abolished on 1 July 2023. Minns has indicated that first home buyers who have already opted for the FHBC scheme will not be forced back into the old system.
In summary, land tax is a tax imposed on the ownership of land, which is typically calculated as a percentage of the land value. The person who needs to pay land tax is usually the owner of the land as of a specific date, typically the end of the financial year. This applies to individuals, partnerships, companies, trusts, and superannuation funds that own the land.
Owners do not need to pay land tax if the combined value of all taxable land they own is less than the thresholds. The land tax rate and threshold can change each year, so it's important to stay informed. For example, if you purchase a rental property and do not register it for land tax because you believe the land value is below the threshold, but the value of the property increases later and exceeds the threshold, you could receive a retrospective land tax assessment.
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Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.