No one likes taxes…. Am I right? If you are planning on becoming a Property investor (or increasing your portfolio), Land Tax may be another expense to add to your cash flow and something to always be aware of.
A lot of property buyer's these days are unaware of what land tax is, if they need to pay it, let alone how to calculate it. Not much attention is paid to land tax until it’s time to pay the bill itself. It’s important that land tax be taken into consideration when assessing your financial position and the implications any new investments may have on your overall portfolio.
I’ll start by saying...
Any property you own has an “official land only value”. That value (along with a few other factors and calculations) is used to work out the amount of land tax you may be required to pay each year.
There are four things you need to know, in order to calculate how much land tax you will be expected to pay:
1. WHAT IS THE “TAXABLE LAND VALUE”?
First things first – not all property is subject to land tax. Your home (primary place of residence), as an example, is NOT subject to land tax. Also, if you have a farm (primary production land) that will also not be subject to land tax. You will, however, likely be required to pay land tax on a residential apartment or house (that isn’t your primary place of residence), as well as commercial properties, and even vacant land! Land tax applies to these types of investments – whether or not income is earned. Once you put aside the “non-taxable” real estate you own (e.g. your home), then you can work out the individual land values for the “taxable land” that you do own (which is the only land to consider when making these calculations).
Ever heard of the “Valuer General NSW”? The Valuer General, is an independent statutory officer, appointed by the Governor of New South Wales to oversee the State’s land valuation system. In short – the Valuer General NSW will tell you the precise value of your land.
You can access your property’s most up to date land value through the Valuer General NSW website, which is updated each year on 1 July:
2. WHAT ARE THE CURRENT NSW LAND TAX THRESHOLDS?
The NSW land tax threshold changes every year (historically increasing only). There are two NSW land tax threshold points:
Standard Threshold (2021): $755,000
Premium Threshold (2021): $4,616,000
If your combined taxable land value adds up to less than the Standard Threshold, you are in the clear and will not be required to pay land tax in NSW.
3. WHAT ARE THE CURRENT NSW LAND TAX RATES?
The NSW land tax rates generally do not change. There are two common NSW land tax rates.
Standard Rate: 1.6%
Premium Rate: 2.0%
4. THE FORMULA
The two most common calculations used to work out the NSW land tax are as follows:
Standard Land Tax Calculation (2021):
For combined taxable land values $755,000 or more (but below the premium threshold).
((Combined/Total Taxable Land Value)
– $755,000 (Standard Threshold amount)) x 1.6% (Standard Land tax Rate) + $100 (base tax fee) = LAND TAX PAYABLE (ANNUAL)
Premium Land Tax Calculation (2021):
For combined taxable land values $4,616,000 or more.
((Combined/Total Taxable Land Value) – $4,616,000 (Premium Threshold amount)) x 2.0% (Premium Rate) + (max. Standard Land Tax Payable)
= LAND TAX PAYABLE (ANNUAL)
NOTE: The above applies to most Individual and Company structures, however different rates and calculations are used for property owned in other structures such as a Trust, joint ownership etc.
TIPS TO MINIMISING LAND TAX
1. Purchasing property in separate entities can assist with reducing payable land tax. The reason being is that the taxable land value combines on properties within the same entity, for example;
INDIVIDUAL: All properties owned as an individual (in personal name).
COMPANY 1: All properties owned in a company name.
COMPANY 2: All properties owned in a company name
TRUST: All properties in a trust.
Each entity will act as a new platform for the thresholds, which means no land tax will be paid on the first $755,000 of the taxable land value.
2. Purchasing property in different states can reduce land tax. That is because every state has different thresholds, rates and rules. The Northern Territory does not impose any land tax at all!
3. Buying property with a lower land tax value such as apartments – this will enable you to increase your property portfolio with minimal impact on your land tax value position.
4. Finding a Professional! A great Accountant or Financial Advisor (who is “pro-property”) is the best kind of professional to have on your side when it comes to understanding land tax, and will help you to assess your financial position when looking at expanding your property portfolio (as well as keeping on top of any changes to NSW Land taxes that may affect you)! A well-advised financial professional will help with all the finer details so that you know what you’re doing – especially for those more complicated situations or structures.
To wrap things up, Land Tax isn’t so scary (or complicated) – just another thing to learn when it comes to investing in property and growing your portfolio. Having a basic understanding of each of the elements of property investment is what will take you from being a Basic Investor to an Advanced Investor – ready to make calculated, informed and educated decisions along the way.
NOTE: The information in this article pertains mainly to NSW land tax information. Any information in this article is general in nature as everyone has individual financial situations. It’s important to always speak to your Accountant or Financial Advisor for advice specific to your current position and any future plans.
Date Published: 6 May 2021
Author: Kimberley Ackerman (Buyer's Agent - Trelease Associates)