Many of us—especially those who are into property investment—have already heard of land tax. The problem is not all of us are aware of the specifics (regulations, developments, exemptions, rates, and thresholds) that apply.
For example, did you know that the government made a few land tax certificate changes and introduced a surcharge in the 2016 New South Wales (NSW) budget? As such, for those residing in or are into property investment in NSW, it’s important to become familiar with land tax rules and regulations and take the necessary steps to take care of your tax obligations. We’ve put together a list of questions and answers to help you cut through the clutter and find relevant information.
What is Land Tax and Who Pays it? – The government imposes land tax as a general revenue measure. This tax is imposed in all states in Australia as well as the ACT but not in the Northern Territory. People who own or jointly own any property in NSW that doesn’t serve as their primary place of residence are liable to pay land tax. The Valuer-General determines the land tax threshold on an annual basis. If the taxable value of a property is higher than the land tax threshold, the owner will have to pay land tax for that property.
An owner could be:
- A sole owner
- Joint owners
- A trustee
- A beneficiary of a trust
- A society or an organisation
- A company
- An owner of company title units
- Lessees of local council land
- Trustees of superannuation funds
What Are the Types of Properties that Are Taxed? – All types of non-exempt properties, including rental homes, holiday homes, vacant land, retail shops, commercial spaces, and investment properties are liable for land tax. Homeowners have to notify the authorities in writing within 30 days if they start renting out their primary place of residence. As a general rule, all non-exempt properties are liable for land tax whether they’re income producing or not.
What is the Tax Threshold for NSW? – The 2017 NSW land tax threshold is set at $549,000. The rate is calculated as $100 plus 1.6% up to the premium threshold which is $3,357,000. If the value of the property is over the premium threshold, you pay $45,028 for the first $3,357,000 and 2% of any amount that goes above the premium threshold.
To cite an example, if the value of your property is $800,000, you’ll pay land tax on $800,000 – $549,000 = $251,000. This amounts to $4,116 (251,000 x 1.6% + $100). The land tax for strata units is determined on a proportional basis. The Valuer-General will use the unit entitlement for each lot together with the aggregate for the strata scheme. So if you own a strata unit for investment purposes, your land value is apportioned based on the size of the block, divided by the number plus size of units present on that block.
Who Is Exempt from Paying Land Tax? – If you use or occupy any piece of land as your primary residence (home), you’re exempt from paying land tax for that property. The same exemption applies to primary production land or land which is used towards market gardening, orcharding, cereal cropping, hydroponics, bee keeping, dairying, pig-farming, and more. To see the entire list of businesses or industries that are included, view the Primary Production Land Exemption application form. Child care centres, nursing homes, non-profit organisations, and boarding houses are also entitled to full or partial exemptions.
How Do You Know How Much Land Tax You Have to Pay? – You’ll receive a notice of assessment each year with the valuation for your land. If you don’t agree with the assessment, you can object to the valuation within 60 days of receiving your notification. You will still have to pay the outstanding amount or you risk paying interest on the amount due. The notice period is for one calendar year. From the 1st of January to the 31st December. It includes land tax for all non-exempt properties owned on 31st December of the year prior to the one in which you’re being taxed.
How Soon Do You Need to Pay Land Tax? – You have to pay it by the first instalment date mentioned on your land tax notice. If you pay the amount in full, you can even get a 1.5% discount on the total amount.
What Is Land Tax Surcharge? – As per the changes introduced to the 2016 NSW Budget, all foreigners who own residential land in NSW have to pay an additional 0.75% land tax surcharge. This surcharge is over and above any land tax they already pay for the properties they own.
For example, if you’re a foreign investor and own a home in NSW that’s valued at $800,000. You’ll pay $4,116, which is the standard land tax rate plus a 0.75% surcharge or $6,000 in this case on the total land value. There isn’t any tax-free threshold offered on the surcharge. You might even have to pay the surcharge when you don’t pay land tax—if your property is valued at any amount less than $549,000 for instance.
Apart from land tax, foreign investors also have to pay a 4% surcharge purchaser duty on any residential properties purchased in NSW. This surcharge is also applicable to landholder transactions.
Seeking Financial Assistance
Land tax costs can add up and set you back thousands of dollars each year. There are ways however for property investors to save on property tax. One way, for example, is to buy properties using different buying entities. You could also look for investment properties that are valued at any amount lower than $549,000. Obviously, it’s very important to have a detailed discussion with a financial expert to ensure you’re in compliance with the law.
If you need help regarding land tax or property investment in general, don’t hesitate to let us know. We at Clever Finance Solutions have the expertise and tools to help you invest strategically and successfully and put your money in the right place.