Australian property land tax: Exploring silent costs

Often people get confused that land tax is not applicable to apartments and that it is only for houses. This is untrue, as all properties in Australia have a land value attached to them. For land tax, it is governed by each of the respective state government and therefore the rules and threshold differ. As the land value of your property increases, land tax will become a significant cost for a property owner. This dilutes the net return from an investment portfolio, especially for a foreign person.

Foreign person surcharge

When speaking with clients, the majority of them did not realise that the State Revenue Office (SRO) of New South Wales (NSW) regards Australian PRs living outside of Australia as a foreign person and will therefore issue an assessment for a 4% foreign person surcharge. As this is an annual charge, one starts to consider selling the property as this is a significant cost. For buyers currently living overseas and looking to purchase, you may want to consider purchasing the property solely in the name of the Australian citizen spouse rather than opting for joint ownership with the Australian PR spouse. This approach will eliminate the foreign person surcharge.

Recently, revenue NSW announced that the NSW surcharge was inconsistent with international tax treaties entered into by the Federal Government, thus they have excluded these eight countries (citizen of New Zealand, South Africa, Germany, Finland, Japan, Norway, India or Switzerland) as foreign owner. So, if you are a PR of Australia living overseas, the surcharge will be applicable to you but if you are a citizen of one of these countries, they will not apply, as fair or unfair this may be.

For individuals owning Victoria (VIC) properties, there will be significant changes to land tax as part of the “COVID debt repayment plan” which introduces a temporary land tax surcharge from 2024 land tax year, expiring after 10 years. With that, if your taxable landholdings is $50,000 and above, you will receive a land tax assessment.

Revenue VIC has proposed to broaden the scope of vacant residential land tax and to remove geographic limitation. This means it will apply to all vacant residential land across VIC, effective from 1 January 2025. This has not been passed but if does, it will affect properties that are currently used intermittently or on a casual basis by friends or family of the owner.

The common misconception is that there is no liability when owners don’t receive an assessment or a property they owned is not reflected in their assessment. Instead, a few years later, they receive an assessment for arrears with penalties and interest charge for them. Given that land tax amounts are deductible in the respective income years to which the liability for land tax relates to, and assuming that you have already lodged your previous year tax returns, you will be required to amend it to include the land tax as a deduction.

Therefore, it is important to always contact your respective SRO to check if you have any liability. Keep the email communication as record and always update your latest personal details with them. This is not managed by your property management agent, and it is the owner’s responsibility to ensure all properties owned in the state has been included.

To summarise: What is land tax?

It is an annual state tax and payable by property owners. It primarily targets properties that are not used as a family home and is triggered when their total taxable value exceeds a specific land tax threshold. Some states have introduced additional surcharges for foreign persons.

*Please note that these rates and thresholds are subject to change and should be used for general comparison purposes only. For the most up-to-date information, visit the appropriate state government website or consult a tax professional.

Diana Chua is an Australian Technical Consultant with Select Investors, a Senior Partner Practice of St. James’s Place. Prior to this, Diana has been working closely with expatriates on their Australian tax matters and providing tax planning services for the last 19 years.

Please contact Diana on diana.chua@sjpp.asia or +65 8807 2552 if you like her to provide guidance on Australian tax matters or like a complementary review of your personal financial situation together with one of our wealth planners.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.

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