What is land tax?

By October 19, 2016Buying, Legal

Property owners in New South Wales are liable for land tax if they own land, houses, apartments or other forms of real estate. But it does not apply to your family home, so if you only own your principal place of residence then this is not something you’ll need to pay.

The current land tax threshold is $482,000. This means investors can hold property where the land value is up to this value without being charged a tax by the government. After that point, the rate is $100 plus 1.6 per cent on an annual basis. When you own $2,947,000 or more of land, you are charged a ‘premium’ land tax of $39,540 plus 2 per cent for anything over the new threshold.

Every year on the 31st December, land tax is calculated and a bill is sent to property owners. To ensure you are taxed correctly, you should register for land tax via the Office of State Revenue online by March 31 in the tax year. If you are liable for land tax, a notice of assessment will be sent annually. Land tax is payable on vacant land, including rural land, land with a house, apartment or flat on it, investment properties, holiday homes, industrial units, commercial units and land leased from state or local government.

The land values used to calculate whether you are liable is data provided by the Valuer General, who values all land on 1st July. This data is used a year in advance. Then, the value is calculated by finding the average of the last three years. This figure can be disputed if you believe it has been inaccurately calculated.

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For investors who own apartments, the land value of each strata unit is calculated on a proportional basis depending on the entitlement of that lot.

As it is a state-by-state tax, some property investors diversify their portfolio to other states and territories to reduce their land tax bill. As company and trusts are also liable for land tax and considered separate to an individual, some accountants recommend different structures to reduce land tax. Speak to your accountant and financial adviser before purchasing property to ensure you buy in the most efficient structure.

Those that fail to register for land tax may be liable for penalties and interest payments.

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