Land tax: What investors can do to minimise it

For every real estate investor, land tax represents a significant cost to owning an investment property. Here are smart strategies you could use to legally minimise how much you pay. 

How is land tax calculated?

Land tax is calculated based on the total value of all the taxable land you own that exceeds a set threshold, which varies per state and territory. If the combined value of your land does not exceed the threshold set by the State Revenue Office, no land tax is payable. 

The value of your land is assessed by a Valuer-General. They are state officials, or independent statutory officers, whose office is tasked with providing fair and transparent land values.  

The amount payable varies from state to state. For example, in Queensland, a land tax threshold applies to properties purchased under a trust. In NSW, however, there is no threshold for buying a property under a trust.

Whether you live in the property will also impact how much you need to pay. 

Generally, your family home, known as your principal place of residence (PPR), your farm, known as primary production land (PPL), and land on properties with a taxable value below the state’s threshold are exempt from land tax. 

Remember that land tax is tax deductible and should be claimed against the income produced by any investment properties against which it is levied.

Land tax rates and taxing dates in Australian states and territories 

As mentioned, land tax is levied by each state and territory (except the Northern Territory). As of writing, below are the different rules, rates and thresholds that apply across each jurisdiction: 

NSW 

General Land Tax Rate

Maximum rate: 1.6 per cent over the general threshold of $755,000 and up to the premium threshold of $4,616,000; 2 per cent for high-value properties over the premium threshold of $4,616,000

Surcharge Land Tax Rate: An additional 2 per cent applies to all residential land owned by foreign persons

Taxing Date: Midnight on 31 December annually

VIC

General Land Tax Rate

Maximum rate: 2.25 per cent (increasing to 2.55 per cent from 1 January 2022)

Absentee Owner (Surcharge) Rate: An additional 2 per cent applies to all land owned by absentee owners (new maximum rate of 4.55 per cent will be imposed from 1 January 2022)

Taxing Date: Midnight on 31 December annually

QLD

General Land Tax Rate

Maximum rate: 2.75 per cent surcharge

Land Tax Rate: An additional 2 per cent applies to all taxable land owned by absentee individuals, foreign corporations and trustees of foreign trusts

Taxing Date: Midnight on 30 June annually

WA

General Land Tax Rate

Maximum rate: 2.67 per cent

Surcharge Land Tax Rate: Not imposed at this stage

Taxing Date: Midnight on 30 June annually 

Metropolitan Region Improvement Tax Rate: 0.14 of a percentage point (in addition to land tax for property located in the metropolitan area)

TAS

General Land Tax Rate

Maximum rate: 1.5 per cent

Surcharge Land Tax Rate: Not imposed at this stage

Taxing Date: Midnight on 1 July annually 

SA

General Land Tax Rate

Maximum rate: 2.4 per cent

Trust Surcharge Land Tax Rate Maximum rate: 2.4 per cent surcharge on land owned in trusts where the interests of trust beneficiaries are not disclosed or cannot be identified (excluding listed or widely held trusts)

Taxing Date: Midnight on 30 June annually 

ACT 

General Land Tax Rate

Maximum rate: Fixed charge of $1,326 in addition to valuation charge up to 1.12 per cent on three-year average unimproved value. Applies to all rateable land that is residential land that is not exempt. Not commercial properties.

Surcharge Land Tax Rate: An additional 2 per cent applies to all residential land owned by foreign persons

Taxing date: Midnight on 1 July, 1 October, 1 January and 1 April in each year

Northern Territory 

Property Activation Levy: A levy imposed on the unimproved capital value of vacant land and ground floor non-residential buildings in Darwin CBD.

One per cent levy per annum for unoccupied, non-residential buildings while 2 per cent levy per annum for vacant undeveloped land. 

Note: Information sourced from PCW and crossed-check with the respective websites for each state and territory. 

* The general land tax rates provided above are the highest effective rates. Thresholds and lower rates of tax apply for lower value properties. Other levies and payments can apply to the holding of property and development of land. 

You can also use the land tax calculator that is provided by the websites to help you get an estimate of how much you will need to pay. Make sure to check the links for each website for any new update or changes in thresholds and their rates. 

What can you do you minimise your land tax

Here are steps and strategies an investor can do to minimise land tax. Remember that you will need to evaluate your own circumstances and assets to decide if any of these steps would be of benefit to you.

• Buy units instead of houses

Instead of purchasing houses, you can buy a unit or an apartment. Generally, a unit has a much lower land value than a house due to the relative size and value of land to the overall value. In some states, you could own a number of apartments before reaching the threshold. 

Because of this, a land tax saving can possibly be made. However, there are other expenses you also need to weigh up.

If you choose this option, make sure to calculate the cost of the body corporate - or the strata. Body Corporate fees include building insurance and maintaining common areas, as well as shared utilities, building works and repairs.

If the body corporate fees are higher than the land tax, it may not be worth purchasing the unit as the overall cost of owning the unit (body corporate plus land tax) can have a larger impact on how your investment property will perform. 

This will consequently result in a more in depth discussion on the fundamentals of evaluating the viability of an investment property. But for now, we are only focusing on the fact that some body corporate fees are so excessive, that they have a much greater impact when you are running the numbers on the viability of a property than the land tax will ever be. 

• Purchasing properties using different buying entities

Another way to minimise land tax is to buy properties using different entities.

For example, husband and wife Jim and Agnes Williams have four properties in the same state. If Jim owned one, Agnes owned one, they owned one jointly and the fourth was bought under a trust, it means there would be no land tax to pay as there are four different entities owning the properties.

While this may seem to be ideal, owning only one property in a trust can be costly, if we take into account the set up costs and expenses related to the annual report of trust activity.  

Additionally, each state has different rules for entities. This means acquiring an investment in a structure such as a fixed trust could have a different tax treatment than acquiring in your own name, so it’s best to seek independent tax advice before doing so. 

Finally, be aware of other tax implications (e.g. if your property is negatively geared) and inflexibility regarding the use of these structures.

• Invest in property markets in several states/territories

If you have several investment properties that you own in one state, it’s expected that you would exceed the Land Tax threshold. However, if you spread your investment properties over a number of states and territories, then ideally, there would be less or no land tax to pay because you have spread your investments in different jurisdictions. 

 Before implementing this strategy, ensure that the property is the one that ticks all the boxes for it to be a profitable real estate investment. Remember, land tax should not be your main consideration when buying your investment property. However, it is one potentially significant consideration to holding your property long term.

Lastly, make sure to have a Land Tax strategy if you are planning to buy multiple properties.  

• Be strategic when timing the sale and purchase

If you are selling a property, make sure that you settle before the Land Tax assessment date. If you are selling property, remember that you may still be obliged to pay the Land Tax for the following year if you have not settled before this date. 

For example, Land Tax in NSW has a taxing assessment date of 31st December, which is different from other states and territories that set this schedule midyear. Many people are caught out when selling over this period by signing contracts but not settling until January. They are usually in for a nasty surprise when they find that they have a Land Tax bill to pay even though the property is off their hands.