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land-tax

Ignore Land Tax at Your Peril

Land tax is the forgotten cousin of taxes, most people don’t think about it until it’s brought to their attention. However, you will neglect this forgotten cousin at your peril. In the 2020-21 year the NSW Government undertook a significant compliance program in relation to land tax with the following results:

  • Investigated 3,877 landholders who did not pay land tax surcharge and identified $69.3 million in additional land tax surcharge.
  • Investigated 23,374 landholders who were not assessed for land tax or had incorrect exemptions applied, and identified $244.7 million in additional land tax: and
  • Investigated over 2,013 customers that were not assessed for parking space levy or had incorrect exemptions applied and identified $12.3 million in additional Parking Space Levy.

The NSW tax system relies upon voluntary registration and self-assessment to pay the correct amount of land tax. The NSW Government has an active compliance program to ensure the correct amount and other duties are paid, including information exchanges with the ATO.

What is Land Tax?

Land Tax is an annual tax levied each year on 31 December which is based on the value of the land you own or jointly own. The following types of property will be subject to land tax regardless of whether income is earned from the land:

  • Vacant land, including rural land
  • Land where a house, residential unit, or flat has been built
  • A holiday home
  • An investment property or properties
  • Company title units
  • Residential, commercial, or industrial units, including car spaces
  • Commercial properties, including factories, shops, and warehouses
  • Land leased from state or local government

What Land is Exempt?

Generally, the following properties may be exempt:

  • Your principal place of residence
  • Boarding houses
  • Primary production land
  • Low-cost accommodation
  • Any land you own with a total taxable value below the land tax threshold
  • Retirement villages
  • Residential and caravan parks
  • Childcare centres

The most used exemption is the Principal Place of Residence. To qualify for this exemption the following must apply:

  • Only claim one exemption per family.
  • Have continuously used and occupied the property solely for residential purposes before the taxing date¹.
  • Have used the land for residential purposes.
  • The exemption does not apply to land owned partly or wholly by a company or held in a special trust.

Note 1: It’s important to note if you move away from your principal place of residence you may be able to continue to claim the exemption for a period of up to 6 years. To qualify for this, you must:

  • Have lived there continuously for at least six months before moving away.
  • Not own another principal place of residence.
  • Only earn income from the property to cover basic property expenses, such as rates, water, and other amenities.
  • Not lease out your property for longer than six months in a calendar year – If you lease out your property for longer than six months, you must pay land tax in the following year, unless you move back into the home before 31 December.

How Do I Register for Land Tax?

You are required to register if the value of all the taxable land you own exceeds the land tax threshold. This can be done electronically via the NSW government website at: https://www.apps09.revenue.nsw.gov.au/customer_service/forms/landtax.

Remember the obligation is on you to register when you acquire a taxable property. If you are liable and fail to register or lodge a return you may be charged interest and penalties for failing to pay the correct amount.

How is Land Tax Calculated?

It’s calculated on the total taxable value of all the taxable land you own, on 31 December each year, above the land tax threshold. If the total taxable value of all the property you own does not exceed the threshold you will not be liable to pay that year. 

The thresholds change each year and for the 2021 tax year they are: 

ThresholdValueTax Calculation
General threshold$755,000$100 plus 1.6 per cent of land value above the threshold, up to the premium threshold.
Premium threshold$4,616,00$61,876 plus two per cent of land value above the threshold.

Land tax is applied for the full year following the taxing date of 31 December, and no pro-rata calculation applies. Land is valued on the 1st of July every year by the Valuer General of NSW.

Joint Ownership of Property

There are some special rules which apply to joint owners of the property:

IndividualsJoint Owners
You are assessed based on the total land value of all your interests in land, whether you own them as an individual or as a joint owner.

For example, if you have a 50 per cent interest in jointly owned land, your individual tax assessment will include 50 per cent of that land plus 100 per cent of any land you own individually.

You will receive separate assessment notices for any jointly owned land.

If you own land with one or more other owners, you are considered a joint owner of land. You will be assessed on jointly owned land as if it were owned by one person. The partnership receives the benefit of the one threshold.

As a joint owner, you will be assessed as follows:

  • The joint owners together are called the ‘primary taxpayer’ and are assessed as if they are a single owner.
  • Each joint owner is called a ‘secondary taxpayer’ and will be assessed separately on all their interests in land, with their share of each jointly owned parcel of land added to the value of each parcel of land that they own individually.

Where tax is paid by the joint owners, each joint owner is entitled to a secondary deduction in their separate assessments to avoid double taxation.

What Does The Future Hold For Land Tax?

Late last year in the 2020-21 state budget the treasurer announced tax reform plans to make the transition from stamp duty on property purchases and land tax to an annual smaller property tax payment. Acting on various recommendations coming out of the Thodey financial relations review, Mr. Perrottet would like to move away from stamp duty to an annual property tax. “When it comes to our economy and the biggest impediment on economic growth, the number one area for states are taxes,” Mr Perrottet said.  The full details of the NSW tax proposal plan can be read here: https://www.nsw.gov.au/initiative/property-tax-reform.

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