Land Tax
Land tax should also be a consideration for diversification. Reducing or minimising land tax may be another reason to consider purchasing interstate for future investment properties. Land tax can begin to eat into your cash flow over time and subject to the number and value of your investment properties, it can pay to look interstate after owning two investment properties in the one state.
Land tax is an annual cost that is determined on the total value of the land you own. How and when it is calculated, and when it is due for payment, will vary between states and territories.
Every year, the Valuer-General evaluates/determines the ‘unimproved value’ (i.e. land value) of property. Then in accordance with every state’s different level of land tax-free threshold, policy and method for calculating applicable land tax, a payable land tax amount may be due. Below is the applicable land tax per state (2018–2019) shown by land value, as well as the maximum amount of land value that is land tax-free (threshold). The examples below are for residential property only, based on individual ownership, and excludes the value of the principal place of residence (PPR).
Table-Applicable land tax payable by state
| Applicable land tax (2020-2021) – based on unimproved land value | |||||
| State | Land value | ||||
| Land tax free threshold | $600,000 | $1m | $2m | $3m | |
| ACT | None | $6,456 | $10,856 | $21,856 | $33,056 |
| NSW | $755,000 | $0 | $4,020 | $20,020 | $36,020 |
| QLD | $599,999 | $500 | $4,500 | $21,000 | $37,500 |
| SA | $482,000 | $750 | $4,827 | $27,037 | $51,037 |
| TAS | $24,999 | $5,587 | $11,587 | $26,587 | $41,587 |
| VIC | $249,999 | $975 | $2,975 | $11,975 | $24,975 |
| WA | $300,000 | $1,170 | $2,730 | $14,930 | $34,330 |
Generally speaking, your Principal Place of Residence is exempt from land tax calculations, whereas the value of land for investment properties and holiday homes will be included in determining payable land tax. Properties owned by non-individuals (e.g. trusts/companies) may be subject to varying regulations depending on each state’s policy. As you acquire property, you need to be mindful of your growing land tax bill. As land tax is a state-based tax, a strategy to minimise land tax could be to purchase in different states. Ownership structures might also be a mechanism for reducing land tax. Further, as pressure builds to reduce stamp duty – and pressure will continue to build until there is a breaking point – the result will be increased land tax on all properties, possibly with the exemption of the home. Reduced stamp duty and increased land tax will further penalise property owners who have significant numbers of property in the one state.
David is the Founder and Managing Director of Property Planning Australia, author of ‘How to Succeed with Property to Create your Ideal Lifestyle’, co-author of ‘Property for Life – Using Property to Plan Your Financial Future’, co-host of the ‘Property Planner, Buyer and Professor Podcast’ and a widely-published media commentator. With more than 20 years of experience, David is passionate about educating others to make informed, and ultimately, more lucrative property investment decisions. David established Property Planning Australia in 2004 – with the vision to educate and empower Australians to make successful property, mortgage strategy and money management decisions. Property Planning Australia’s operations have earned acclaim and national industry awards for its unique fusion of property planning, education, money management, mortgage strategy and risk management. All supported by multi award-winning customer service.