Land tax is based upon the unimproved value of the land and charged regardless of whether your property generates surpluses after costs, explains Steve Douglas, co-founder and Australian tax advisor at SMATS Group.
It is collected by the state government to assist with the costs of providing infrastructure and services for property owners. Many living in Australia are unfamiliar with land tax because it is not charged on the family home in any of the states; they usually only charge for vacant land, or rental and commercial properties.
How It Is Calculated
Land tax is calculated on the cumulative value of all property owned by a person in the state of location. The more you own in each state, the higher the rate of land tax, which can escalate costs. If you own property in just one state, check the land tax value on your next purchase to know the potential cost, as any new purchase will increase your tax rates. Remember that land tax on an apartment will be substantially less than that of a house, as the unimproved land value is shared with many owners and creates a lower individual value for tax purposes.
Each state has its own system, which can be advantageous if you have property in several states, because you get a new threshold for each state of ownership. The annual cost can vary from a few hundred dollars to thousands, and each State Revenue Department actively seeks out non-payers and recoups land tax arrears. You should receive an Annual Assessment from the state government where your property is located, seeking clarification on the use of the property and confirming the tax value.
Land Tax Liabilities
If you think you have a potential land tax liability, contact your property manager or the State Revenue office to confirm if you exceed the relevant threshold for your state. If the state government finds you first, the penalties can be expensive, and it may be unwilling to reduce penalties, even if you were unaware of your obligation.
Land tax cost can be expensive if you’ve built a substantial property portfolio in one state, which will require consideration when working out cash flow on your rental property. It can also be an unwelcome surprise if you’ve bought a modest house on a large lot in a nice area, as, in some cases, the land tax can be a large portion of your annual rent.
Ask your selling agent during the purchase period about the land tax value and if it is above the tax-free thresholds before making your cash flow assumptions on the property. Make an appointment with SMAT if you need further advice.
THE EXPERT, Australian Tax Advisor, Steve Douglas
Steve Douglas is the Co-Founder and Managing Director of Australasian Taxation Services (ATS). ATS provides specialist taxation services for anyone looking to invest in Australian property, including Australian expatriates living overseas. Areas of specialisation include the Australian taxation aspects of property investment, as well as expatriate and migration planning.
From The Finder (Issue 295) , November 2018
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