Land tax basics for property investors: state-based, thresholds vary

Land tax is the running cost that surprises new investors most, because nobody mentions it at the open home. It is not part of the purchase price, it is not stamp duty, and it does not appear on the mortgage statement. It arrives as its own assessment, usually once a year, from the state revenue office — and whether you pay it, and how much, is decided by decisions you make at the point of purchase.

This article explains the shape of the tax. It deliberately does not quote thresholds or rates, because they differ between states and change with budgets. Your accountant will give you the current figures for your situation.

What land tax is

Land tax is a tax levied by each state and territory on the unimproved value of land you own in that state — the value of the land itself, not the house on it. Each state sets its own threshold: if the total taxable value of the land you own in that state is under the threshold, you generally pay nothing; above it, tax is charged on the amount over the threshold according to that state’s scale.

Two things follow directly. First, it is assessed per state, so owning land in two states means two separate assessments against two separate thresholds. Second, it is usually assessed on your aggregate holdings in a state, so a second investment property in the same state can push you over a threshold that the first one sat comfortably under.

Your home is usually exempt; investments usually are not

In most states, the home you live in (your principal place of residence) is exempt from land tax. Investment properties, holiday homes you do not live in, and vacant land generally are not. This is the single biggest reason investors encounter land tax for the first time with their first investment purchase — the family home never triggered it.

Ownership structure changes the answer

Who owns the land matters. Individuals, companies, trusts and self-managed super funds can be assessed differently, and some states apply different (often lower) thresholds or surcharge rates to certain trusts and to foreign or absentee owners. Joint ownership has its own rules about how the land is grouped. This is why the ownership question — the same one that matters for capital gains tax and for borrowing — should be answered before the contract is signed, not after.

When it is assessed

Most states assess land tax based on ownership at a particular date each year (often a mid-year or year-end date). Buying just before that date can mean you are the owner on the assessment date for a property you have held for a matter of days. Your conveyancer will also deal with how any land tax for the current year is adjusted between buyer and seller at settlement, which varies by state and by contract.

What to ask before you buy

Ask your accountant: Will this purchase put me over the land tax threshold in this state? If I buy the next one in the same state, what happens? Does the ownership structure I am considering change the threshold or the rate? Is there a surcharge that could apply to me? And ask your conveyancer how land tax is adjusted at settlement in this state.

Why we put this on the list

At TNC Group, the running costs of a property — land tax among them — are part of the numbers in the Strategise and Plan steps, not a discovery in year one. We do not give tax advice; we make sure your accountant is asked the right questions before you commit.

Want the whole cost picture before the search? Book a free 15-minute call — book here — or visit www.tncgroup.com.au.

General information only. This is not tax, financial or legal advice. Land tax rules, thresholds and rates differ between states and change over time — speak to a registered tax agent or accountant about your situation.