When you own investment property in New South Wales (NSW), it’s important to be aware of the land tax obligations that accompany your investment. Land tax is an annual tax levied on the owners of non-primary residence properties based on the total land value above a specific threshold.
Understanding the annual thresholds and rates is crucial for effective financial planning and management of your investment properties.
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Overview of Land Tax in NSW
Land tax on land owned in New South Wales (NSW) is an annual tax applied to land owners as of midnight on 31 December of the previous year. For the 2023 tax year, NSW’s general land tax threshold is $822,000. If the total taxable value of your land falls above this amount, you will be charged land tax at a rate of $100 plus 1.6% up to the premium land tax threshold of $5,026,000.*
Any property valued above the premium threshold incurs a further 2% tax.
Purpose of Land Tax
The purpose of land tax is to generate revenue for state services. Unlike property taxes that fund specific local infrastructure and services, your land tax payments contribute to the broader state budget, which can include funding for education, health, and public safety across NSW.
Determining Land Tax Liability
In New South Wales (NSW), your land tax liability depends on the combined value of all taxable properties you own, and specific exemptions may apply.
Land Tax Assessment Criteria
Your land tax is calculated on the total value of your taxable land over the threshold, not per individual property. The value of all land you owned on 31 December of the previous calendar year is used to calculate your liability for that year. Taxable land includes investment properties, company titles, and leasehold interests.
Principal Place of Residence Exemption
Your principal place of residence is typically exempt from land tax. It’s crucial to note that this exemption from land tax applies only if you use the property as your home. If you own multiple properties, only the one you live in qualifies for this exemption.
Land Tax Thresholds
In NSW, land tax is levied based on certain thresholds. For 2023, the general land tax threshold was $822,000. Here’s a basic breakdown of how tax is calculated if your land value falls within different ranges:
- Below $822,000: No land tax payable
- Above $822,000 and up to $5,026,000:
- Tax Amount = $100 + 1.6% of the land value over the threshold
- Above $5,026,000 (premium threshold):
- Tax Amount = 2% of the land value over the premium threshold
Remember that new build-to-rent housing projects are eligible for a 50% land tax discount until 2040.
Calculating Land Tax on Investment Properties
Your land tax is calculated on the total value of all your taxable properties combined, rather than on an individual property basis. An annual land tax assessment notice will provide you with the details of the owed tax, reflecting the total land value.
Rate of Taxation
The taxation rate is set at $100 plus 1.6% for the land values up to the premium threshold. Beyond this threshold, the tax rate rises to 2%. This progressive rate structure is designed to ensure that higher-value properties contribute a larger amount of land tax.
Tax-Free Threshold
As of 1 January 2024, the land tax-free threshold has been lowered to $50,000. This means that if the combined value of your land is below this amount, you are not liable to pay land tax. For example, if you have an investment property with a land value of $150,000, land tax will be calculated based on $100,000 ($150,000 – $50,000 threshold).
Land Tax Exemptions and Concessions
Land tax in New South Wales (NSW) can be substantial, but you may be eligible for exemptions or concessions that could significantly reduce your liability.
Types of Exemptions
- Principal Place of Residence Exemption: You are exempt from land tax on any property you own and use as your main residence.
- New Build-to-Rent Housing Projects: The NSW Government introduced a land tax discount for new build-to-rent housing projects until 2040, and eligible properties receive a 50% reduction in land value for land tax purposes. The guidelines and application process can be found here.
Eligibility for Concessions
- Ownership Threshold: If you became a property owner on or after 1 February 2024, and own less than a 25% interest in the land, you are not eligible for the principal place of residence exemption.
- Annual Threshold Adjustments: The tax-free threshold and rates for land tax may change annually. Stay updated with the Revenue NSW for the current year’s threshold.
Land Tax NSW Compliance
Ensuring compliance with land tax obligations in NSW is a critical responsibility for investment property and land owners. Familiarise yourself with the audit processes and penalties to avoid unforeseen liabilities.
Audit and Enforcement
Revenue NSW administers land tax and has the authority to conduct audits on property owners to ensure compliance with land tax legislation. During an audit, your records and property declarations will be scrutinised. Documents such as contracts of sale, lease agreements, and asset schedules may be examined to determine the correct land value and tax liability.
- Records Retention: You must retain relevant documents for five years.
- Audit Process: If you’re selected for an audit, you’ll be notified in writing and given instructions on the next steps.
Penalties for Non-Compliance
Failure to meet land tax obligations and pay land tax can result in significant penalties. You may be subject to fines or interest charges if you provide false or misleading information or default on your land tax payments.
- False Statements: A penalty of up to 100 per cent of the unpaid land tax could be imposed.
- Late Payment: You’ll incur interest on outstanding amounts, calculated from the due date until the tax is paid in full.
Key Takeaways
- Land tax is an annual tax levied on non-primary residence properties, calculated based on the total value of all taxable properties owned.
- Exemptions and thresholds vary by state in Australia; for example, properties used as a primary residence or for farming are typically exempt.
- Accurate valuation of property is crucial as land tax is based on these assessments, and owners are responsible for reporting any changes in property use that might affect tax status.
- Penalties for non-compliance can include fines and interest on unpaid taxes.
Need More Advice?
Our Investment Services team can offer independent advice and guidance on the above, ensuring the right conversations are had with your accountant and financial advisor so you can make an informed decision. Get in touch with our Investment Services team today.
FAQ's
For the 2024 tax year, the general threshold for land tax in NSW is $100 plus 1.6% of the land value above the threshold, while the premium threshold stands at $88,036 plus 2% of the land value above the premium threshold.
Land tax in NSW is typically levied on non-primary residences, such as investment properties, irrespective of whether they’re rented out or remain vacant land.
You may be eligible for an exemption from paying land tax on your investment property if it’s your primary place of residence, used for boarding houses, or a primary production land, i.e. a farm, among other specific criteria.
The land tax you pay on a strata unit in NSW is based on the proportionate value of the parcel of land attached to a residential unit on your strata title, which is calculated according to your unit entitlement compared to the aggregate unit entitlement for the entire strata scheme.
Land tax on investment properties in NSW is calculated by adding $100 to 1.6% of the total land value above the threshold for the general rate. Properties with a value above the premium threshold are taxed at a higher rate of 2%.
The ‘six-year rule’ allows you to claim an exemption for your investment property if it was your principal residence and you have not rented it out for more than six consecutive years since moving out.
Disclaimer: This information is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your situation, and for professional advice, seek out a financial adviser.
*Source: Revenue NSW
