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What is Land Tax? The Facts, Traps and Thresholds.

Posted on November 10, 2019
by Adam Birrer in Accounting, BUSINESS Blogs & Tax Planning

4 min read

Contents

  • So what is Land Tax?
  • When does Land Tax NOT apply?
  • Land Tax Exemption Details
  • When does Land Tax apply?
  • Does who owns the land matter?
  • What Land Tax Traps do I need to know about?
  • What do I need to know about Land Tax Thresholds?
  • What are the Land Tax Thresholds & Rate Calculations in each State?
  • I own land, so what do I need to do next?

Before we get into the details here’s some Land Tax facts for you – in 2017 the NSW State Revenue Office collected over $3,050 million in Land Tax revenue! All States except the Northern Territory have land tax, and ACT land tax could be considered heavier than other States. So Land Tax is a significant tax to know about… unless you own land in the Northern Territory.

Unfortunately Land Tax is often a forgotten and misunderstood tax that can fly under the radar of many property investors. However a lack of understanding can lead to individuals or companies who have bought property falling into trouble, depending on how they bought the property and what they intend to use it for. It has also grabbed the spotlight in recent years as politicians grapple with funding challenges at both the federal and state level.

In NSW, Land Tax is assessed in December each year, so with the arrival of the 2019 Land Tax Assessment Notices due in January 2020, now is a good time to take you through Land Tax in detail so you can determine if it involves you and the steps you need to take.

So what is Land Tax?

In a nutshell, land tax generally applies to those who own, or jointly own, a property above a certain land value threshold that is not their main place of residence and is not exempt. We will go through exemptions later in this piece.

It’s important to note that land tax is state-based, so it can vary depending on the location of your property. With the rules regarding land tax being similar across states we will focus on NSW in this article. Once we get to the thresholds and rates we will go through each state, as the differences can be quite significant. You will also find links to each State’s website if you would like more information on the areas you are interested in.

When does Land Tax NOT apply?

In summary you will generally not be required to pay land tax if the property is:

  • your home, known as your principal place of residence
  • your farm, known as primary production land
  • below the land tax threshold when it is assessed at midnight on 31 December each year

Following are expanded details of land tax exemptions.

Land Tax Exemption Details

Principal Place of Residence

This exemption from land tax can apply where one of the owners uses and occupies the land as their principal place of residence. The exemption only applies to actual people (i.e. not companies or trusts) and the exemption is not affected by the value or size of the land.

Concessions can also be applied in the following situations:

  • land is intended as your principal place of residence
  • changing your principal place of residence
  • land is used for incidental business
  • absence from your former residence
  • deceased estates
  • permitted occupancies
  • mixed use properties

Primary Production Land

If the main use of the land is for primary production then this exemption may apply, whether or not it is you that is undertaking the primary production activity.

If the land is not zoned as rural, the property will need to pass a business test.

Other – Use of Land

Other exemptions or concessions may apply to owners of land used for:

  • boarding houses
  • low cost accommodation
  • residential/caravan parks
  • non-profit organisations
  • retirement villages
  • childcare centres

When does Land Tax apply?

Aside from the above exemptions, if you own or jointly own property that has a total taxable value above the land tax threshold you may have to pay land tax. This includes:

  • vacant land, including vacant 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.

Whether income is earned from the property or not, land tax still applies.

Does who owns the land matter?

The subject of Land Tax is complicated when you bring in who owns the land and can remove the exemption from the property. Ownership variations include if it is owned by both an individual and a company, whether you own more than one property and the list goes on. The level of detail involved in some ownership scenarios is quite long so we’ll provide you with a summary of the different types below.

Individual or Joint Ownership

If you don’t meet the exemptions then you may be liable to pay land tax and are assessed based on the total land value of all your interests in land, whether you own them as an individual or joint owner.

So if you have a 50% interest in jointly owned land your land tax assessment will include 50% of that land value and 100% of any land you own individually. Separate assessment notices will be sent for any jointly owned land.

Company or Trust Ownership

A company is assessed in the same way as an individual unless it is related to another company.

In the case of trust ownership it helps to provide a definition. So a trust is an arrangement where a trustee manages or holds a property for the benefit of one or more individuals or organisations (known as a beneficiary). A trust may be charged land tax and/or surcharge land tax.

Trusts for land tax purposes can be divided into six categories, each with various taxing implications:

  • special trusts
  • fixed trusts
  • superannuation trusts
  • trusts created by a will
  • concessional trusts
  • charitable trusts

A trustee is assessed in the same way as an individual unless it is a special trust.

If the home you live in is owned through a trust or company, land tax will need to be paid if:

  • the land is owned by a company or owned jointly with a company, unless the company is a ‘trustee company’ or a company acting as trustee of a concessional trust
  • you only own the land because you’re a trustee
  • the land is owned by a trustee of a special trust

Foreign Person

If you are a foreign person who owns residential land in NSW, you need to pay a surcharge of 2% which applies from 2018 land tax year onward. You may be a foreign person if you are not an Australian citizen. A foreign person can be:

  • an individual
  • a corporation
  • a trustee of a trust
  • a beneficiary of a land tax fixed trust
  • a government or government investor
  • a partner in a limited partnership

You are required to pay the surcharge on the taxable value of all residential land that you own as at 31 December each year.

  • The surcharge is in addition to any land tax you may already pay.
  • The surcharge is assessed in relation to each parcel of land, and is proportional to ownership.
  • You may be required to pay the surcharge even if you do not pay land tax.
  • There is no tax-free threshold for the surcharge.

From 1 July 2019 certain visa holders are exempt from surcharge land tax on their principal place of residence if they occupy it for 200 consecutive days in the current land tax year.

What Land Tax Traps do I need to know about?

Leases of Crown Land

If you lease property from either the Crown (i.e. NSW State Government) or a local council, under certain circumstances you may be deemed to be the ‘owner’ of the leased land and liable to land tax. This can often be an extra ‘hidden’ cost associated with entering into such a lease.

The most notable exception to this rule applies where the term of the lease is less than 12 months, including any period under an option. There are other exceptions for grandfathered leases and public authorities.

As with property you own, the land values for land you lease are determined by the Valuer General as at 1 July in the year preceding each tax year. Where there are multiple lessees occupying a property the land value of the area you lease may be apportioned to you.

Discretionary Trusts with Non-Resident Beneficiaries

Foreign persons who own residential land in NSW must pay a 0.75 per cent surcharge for the 2017 land tax year, rising to two percent from the 2018 land tax year onwards.

For an individual, a foreign person is defined as someone who is not an Australian citizen or an ordinary resident.

A potential trap applies to trusts that own residential land in NSW as the rules also deem the trustee of a trust to be a foreign person if substantial interests are held by a beneficiary who is an individual and is not ordinarily a resident of Australia.

For a discretionary trust, every beneficiary is deemed to have a substantial interest and therefore any trust with a foreign resident as a potential beneficiary (whether or not they have received distributions) will potentially be liable for surcharge land tax.

The Revenue NSW have released Revenue Ruling G010 which states that the Commissioner has a discretion to exempt the trustee of a discretionary trust from surcharge purchaser duty and/or surcharge land tax if there is no scheme to avoid these taxes, and the trust deed is amended within 6 months of the exemption being granted to remove foreign persons from the list of beneficiaries.

Therefore it is crucial for all trustees owning land in NSW to review their discretionary trust deeds and consider if any foreign residents fall within the class of beneficiaries.

What do I need to know about Land Tax Thresholds?

These apply specifically to NSW but may also be relevant in other States:

  • Individuals, most partnerships, companies and superannuation funds are generally entitled to the threshold
  • ‘Special Trusts’, including most discretionary trusts, are NOT entitled to the threshold and taxed on the total value of their property
  • If the combined value of your land does not exceed the threshold, no land tax is payable
  • Land tax is calculated on the total value of all your taxable land above the land tax threshold
  • If you own land in different States the land values aren’t combined for either threshold but assessed separately in each State.

What are the Land Tax Thresholds & Rate Calculations in each State?

Land Tax can change each year so it’s important to stay on top of the thresholds and rates. The differences in land tax can be significant across States, with some having a number of threshold tiers. Below we mention the starting thresholds for each state, the assessment dates and provide links to the relevant websites so you can gather more information on the locations relevant to you.

New South Wales

Land Tax Type Threshold Calculation
General $692,000 $100 + 1.6% of amount above general threshold & below premium threshold
Premium >$4,231,000 2% of land above premium threshold

For all NSW Land Tax Calculations refer to the Revenue NSW website.

Assessment date – Midnight on 31 December each year

Victoria

Land Tax Type Threshold Calculation
General $250,000 and above Starts at $275 + 0.2% of amount above $250,000 then increases for land value >$600,000
Surcharge (land held on trust) $25,000 and above Starts at $82 + 0.375% of amount above $25,000 then increases for land value >$250,000

For all Victorian Land Tax Calculations refer to the State Revenue Office Victoria website.

Assessment date – Midnight on 31 December each year

Queensland

Land Tax Type Threshold Calculation
Individuals $600,000 and above Starts at $500 plus 1 cent for each $1 above $600,000 then increases for land value $1,000,000 and above.
Companies or trustees $350,000 and above Starts at $1,450 + 1.7 cents for each $1 above $350,000 then increases for land value $2,250,000 and above.

For all Queensland Land Tax Calculations refer to the Queensland Governement website.

Assessment date – Midnight on 30 June each year

South Australia

Land Tax Type Threshold Calculation
General >$391,000 Starts at $0.50 for every $100 or part of $100 above $391,000 then increases for land value >$716,000

For all South Australian Land Tax Calculations refer to Revenue South Australia website.

Assessment date – Midnight on 30 June each year

Western Australia

Land Tax Type Threshold Calculation
General >$300,000 Starts at flat rate of $300 for unimproved land value above $300,000 then increases for land value >$420,000

For all Western Australian Land Tax Calculations refer to Western Australian Government website.

Notice of Assessment date – Generally issued between October and January each year.

Tasmania

Land Tax Type Threshold Calculation
General $25,000 – $349,999 $50 + 0.55% of value above $25,000
General $350,000 and above $1,837.50 + 1.5% of value above $350,000

For more about Tasmanian Land Tax Calculations refer to State Revenue Office of Tasmania website.

Assessment date – Midnight on 1 July each year

Northern Territory

The Northern Territory Government currently does not charge land tax for land owners.

ACT

Land Tax Type Threshold Calculation
Fixed Charge Nil – applies to all land values $1,263 paid regardless of the land’s average unimproved value (AUV)
Valuation Charge (divided into quarterly payments) Nil – applies to all land values Starts at 0.50% of the AUV of the property up to $150,000 then increases for land value above this.

For all ACT Land Tax Calculations refer to Revenue ACT website.

Notice of Assessment date – Midnight on 1 July, 1 Oct, 1 Jan and 1 April each year

I own land, so what do I need to do next?

The main issue we see with land tax is that our clients don’t realise they need to register. We tend to notice this in the preparation of tax returns. Solicitors will often refer people to accountants to complete their land tax registration, but it is something you can do on your own if you have the means.

If you are a land owner you need to self-assess if you are liable for Land Tax and register if required. Or if you are already registered but haven’t updated your properties then now is the time to do it.

If you are based in NSW, once you are registered for Land Tax you will receive your Land Tax Assessment in January, which will outline land you own that is liable and whether it qualifies as general or premium land.

If land owners exceed the threshold for the first time on 31 December in the current year, they have until 31 March of the following year to register.

If any of the details on the Assessment Notice are incorrect, including the details of the land assessed, you have until the first instalment date to notify your State’s Land Tax office of any changes, usually the end of February. If you disagree with any land values used in your assessment, you can submit an objection within 60 days from the date of issue.

Being proactive with managing your land tax is important. State Revenue offices are regularly reviewing land title records and ATO records to check if people are meeting their obligations.

If you want some additional advice about Land Tax or assistance with your registration then our team are always available to assist you so please get in touch.

Wishing you every success!

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