Land tax is one of the taxes associated with your property. So, what exactly is land tax, and are you liable to pay it? This article will provide you with a guide to answer these questions.
What Is Land Tax and Who Pays Land Tax
Land tax is an annual tax on all non-exempted land owned as at midnight on 31 December each year. For example, if you are an owner of land on 31 December 2024, you may be liable for land tax in 2025.
An ‘owner of land’ can be a natural person, company or trust, and ‘land’ refers to all types of land parcels registered in New South Wales Land Registry Services.
How Is Land Tax Calculated
Land tax is not imposed on each individual property, rather, it is calculated based on the total value of all your taxable land above the land tax threshold. You do not have to pay land tax if the combined value of your land does not exceed the threshold.
The thresholds for land values change each year. In 2024, the general threshold is $1,075,000, and the premium threshold is $6,571,000.
Land tax payable are calculated as follows:
- General threshold: $100 plus 1.6 per cent of land value above the threshold, up to the premium threshold.
- Premium threshold: $88,036 plus 2 per cent of land value above the threshold (2024 tax year).
Land tax is applied for the full year following the taxing date of 31 December, and no pro-rata calculation applies.
Here are some examples:
- Mary is an Australian citizen, and the combined taxable land value of Mary for land tax purposes is $1,075,100, the land tax payable for Mary is $101.60. That is, $100 + ($1,075,100 – $1,075,000) x 1.6%.
- Cora is an Australian citizen, and the combined taxable land value of Cora for land tax purposes is $6,571,100, the land tax payable for Cora is $88,038. That is, $88,036 + ($6,571,100- $6,571,000) x 2%.
If you are liable for land tax, you will receive an annual notice of assessment which includes a list of all NSW land you owned on 31 December of the previous year, and how much land tax you must pay.
Land Tax Exemption
You may be eligible for a land tax exemption depending on how you own and use your land. Exemptions that may apply include the following:
Principal place of residence
You can claim an exemption for land that you use and occupy as your principal place of residence. Below are some frequently asked questions related to the principal place of residence:
Can I claim a property to be my principal place of residence while my spouse claims another property to be his/her principal place of residence?
- No. You can only claim one exemption per family.
Does my company have a principal place of residence?
- No. You must be a natural person to have a principal place of residence. This exemption does not apply to land owned by a company or held in a Special Trust.
Can I claim my farm to be my principal place of residence?
- No. You must have continuously used and occupied the property solely for residential purposes before the taxing date.
How do I prove that a property is my principal place of residence?
- Supporting documents can be electricity bills showing usage, gas bills showing usage, and home and contents insurance policies under your name, etc. Council land rates and water rates are not acceptable documents as they do not demonstrate that you reside in the property.
It is also worth noting that the 2023-24 NSW State Budget announcement introduced an amendment to Schedule 1A of the Land Tax Management Act 1956 (NSW). Following the amendments, this exemption will only be available to a person occupying the property as their principal place of residence who owns an interest of at least 25% in the property, either solely or combined.
Those who claim the principal place of residence exemption from land tax but own less than a 25% interest in the land may continue to claim the exemption for the 2024 and 2025 land tax years. The minimum 25% ownership requirement will then apply to these owners from the 2026 land tax year onwards.
Also, persons who purchase a property on or after 1 February 2024 and own less than a 25% interest in the land will be liable from the 2025 land tax year.
Primary production land
If your land is zoned rural, rural residential, or non-urban, and it is primarily used for primary production and you sell the resulting product, you may be exempt from land tax. Land that is not isn’t zoned rural, rural residential, or non-urban may still be exempt if you can prove that the main use is primary production.
Primary production can include maintaining animals for natural increase or sale, cultivating crops for sale, beekeeping for honey production, growing flowers, orchids, or mushrooms for sale, commercial fishing, and farming fish or oysters.
However, please note that not all of these activities can be considered primary production. The level of activity above must be sufficient to conduct a business, not just a hobby. Additionally, it must be carried out with the intent to make a profit on a continuous or repetitive basis, and it must have a significant commercial purpose or character.
Primary production is assessed based on activity undertaken on 31 December each year, and if your land is currently fallow or in drought, activity before or after 31 December may also be considered.
Oother types of exemptions
Exemptions may also apply to boarding houses, low-cost accommodations, childcare centerscentres etc, subject to conditions.
If you would like to lodge a return or apply for an exemption or concession, please do not hesitate to contact us.
Surcharge Land Tax
If you are a foreign person who owns residential land, you must pay surcharge land tax in addition to any land tax you may already pay. You may also be required to pay surcharge even if you do not pay land tax.
If you are a permanent resident of Australia but not an Australian citizen, generally, you will also be considered a foreign person, unless you have lived in Australia for 200 days or more in the 12 months prior to the taxing date of 31 December.
There is no tax-free threshold applicable to surcharge, and the surcharge rate is:
- 0.75% from the 2017 land tax year, and
- 2% from the 2018 land tax year onwards
- 4% from the 2023 land tax year onwards.
Surcharge is assessed in relation to each parcel of residential land and is proportional to ownership.
More Information
If you would like to obtain more information regarding land tax, please feel free to contact Paysonberg. We have a proficient legal team equipped to offer reliable advice on property-related taxes and business matters.
