Nobody likes to receive an unexpected communication from the Tax Office, particularly if it contains a large bill for your Land Tax that you weren’t ready for. As Australian Expats, we often forget or don’t pay enough attention to our Australian tax obligations when it comes to our property, so it’s important that you do your homework upfront and ensure you’re making fully informed property investment decisions.
Let’s start with outlining exactly what Land Tax is
Land Tax is a state-based tax that is applied to the cumulative value of your unimproved land that you own and it excludes your primary residence. There are both different rates and tax-free thresholds that are applied in each of the various states, so it’s important that you know what they are. Land tax may not seem like such a big deal if your property values are below A$1M, however as your portfolio grows and the value of your land increases, then this can be a significant burden.
What are the tax rates and tax-free thresholds in each state?
New South Wales
- Tax Free Threshold: $629,000
- Land Tax Rates: Starting at 1.6% and rising to 2.0% above $3.846M
- Register: Click here
Queensland
- Tax Free Threshold: $600,000
- Land Tax Rates: Starting at 1.0% and rising to 1.75% above $5M
- Register: Click here
Victoria
- Tax Free Threshold: $250,000
- Land Tax Rates: Starting at 0.2% and rising to 2.25% above $3M
- Register: Click here
Western Australia
- Tax Free Threshold: $300,000
- Land Tax Rates: Starting at 0.25% and rising to 2.67% above $11M
- Register: Click here
South Australia
- Tax Free Threshold: $353,000
- Land Tax Rates: Starting at 0.5% rising to 3.70% above $1.176M
- Register: Click here
Australian Capital Territory
- Tax Free Threshold: Not applicable
- Land Tax Rates: Fixed charge of $1,145 plus marginal rate starting at 0.5% rising to 1.1% above $2M
- Register: Click here
Tasmania
- Tax Free Threshold: $24,999
- Land Tax Rates: Starting at 0.55% rising to 1.5% above $350,000
- Register: Click here
North Territory
Thankfully, for Northern Territory property investors, there is no land tax applied.
Now that we know the rates and how to register, how can we minimise it?
Unfortunately, it’s not possible to offset land tax against capital gains or rental income in Australia, so it’s important to recognise that the payment needs to be made if and when it falls due. There are three simple tips that you can implement to minimise your potential land tax exposure:
- Buy properties with lower land values
You may consider investing in townhouses or units, where the value of the land is typically less than that of a house. It’s important in this scenario that you weigh up any other costs involved such as body corporate fees, as in some cases these can be significant and outweigh any saving when it comes to your land tax.
- Buy properties in different states and territories
As we’ve already highlighted, Land Tax is a state-based tax and each has its own tax-free threshold. By diversifying your property portfolio across different states and territories, you can take advantage of these thresholds as well as diversify your investments. It’s important to ensure that the investment is aligned with your own personal financial goals and that it makes fundamental sense to be investing in a particular area, not just to avoid land tax exposure.
- Buy properties in different entities
Land tax is applied to each individual entity, so this can be another option to avoid or at least minimise your land tax exposure. A couple may decide to each buy one property in their own names, buy a third in the name of a company and a fourth property in trust. Each would benefit from the tax-free threshold and this may result in a significant tax saving. It’s important to consider any tax or personal financial implications here when considering different ownership structures. There can also be setup and ongoing annual costs to run certain entities so be sure to do your homework upfront.
With the right forward planning and great advice, you can ensure that you don’t receive any Land Tax surprises and that your property investment strategy is on track to help you to achieve your financial goals.
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