Land tax is an annual levy imposed on property owners in New South Wales.
Land tax applies to various types of land, such as vacant land, commercial and industrial properties, rental properties, and holiday homes. However there are some exemptions and concessions that property owners may be eligible for.
In this blog post, we will provide an overview of land tax in NSW, including how it is calculated, the thresholds, and rates applicable.
What is Land Tax?
Land tax is a state-based tax imposed on property owners in NSW. It is calculated based on the combined value of all taxable land owned by an individual or entity as of December 31 each year.
The Valuer General determines the land value, which excludes the value of any buildings or improvements on the land.
The assessed value is then used to calculate the land tax liability.
Land Tax Thresholds and Rates:
Land tax rates and thresholds may change from year to year. Currently, the following rates and thresholds applied:
A tax-free threshold of $969,000
A rate of $100.00 plus 1.6% for the land value between the tax-free threshold and the premium threshold ($5,925,000).
A premium rate of $79,396.00 plus 2% for the land value above the premium threshold.
Exemptions and Concessions:
Land tax in NSW does not apply to every type of property. Some exemptions and concessions are available to property owners, including:
Principal Place of Residence: Land tax typically does not apply to a person's primary place of residence.
Primary Production: Land used for primary production, such as farming, is exempt from land tax.
Boarding Houses: Land used for operating registered boarding houses may be exempt or receive concessional treatment.
Retirement Villages: Land used for retirement villages, nursing homes, or aged care facilities may qualify for an exemption or concession.
Other exemptions and concessions may apply based on the specific use or ownership structure of the land.
What does it mean if land tax is marked as adjustable?
If land tax is marked as adjustable on a property contract, it means that the land tax liability for the current financial year will be apportioned between the buyer and the seller based on the settlement date. In other words, the seller is responsible for the portion of the land tax from the beginning of the financial year until the settlement date, while the buyer is responsible for the remaining portion of the financial year from the settlement date onwards.
The adjustment will be calculated by your lawyer/conveyancer and added to the settlement adjustments. The purpose of the adjustment is to ensure that each party pays their fair share of the land tax for the period during which they owned the property.
Here's an example:
Suppose a property's land tax liability for the current financial year is AUD 3,000. The settlement date for the property's sale is June 30, which is halfway through the financial year. In this case, the land tax adjustment would be $1,500.
The seller would be responsible for $1,500, which covers the period from the beginning of the financial year to the settlement date. The buyer would also be responsible for $1,500, which covers the period from the settlement date to the end of the financial year.
Adjustable land tax provisions ensure that both parties pay their share of land tax and prevent any potential disputes or double taxation related to land tax liability during the property transaction process.
Can you request that land tax not be adjustable?
Like any other aspect of a conveyancing sale contract, you can request that land tax not be adjustable via formal request to the vendor’s lawyer/conveyancer. If the vendor agrees, the contract will be amended and the vendor will cover land tax for the full calendar year.
If a vendor won’t agree to remove the land tax adjustment, how can you find out how much land tax you need to pay?
Some sale contracts will contain a s.47 certificate which is a land tax certificate issued by Revenue NSW showing whether any land tax is owing on the property. The s.47 will show the value of the land in which case you can head to the Land Tax calculator on Revenue NSW’s website (https://www.revenue.nsw.gov.au/) and check how much land tax is payable on the property. If the certificate does not indicate the property’s value or the contract does not contain a certificate, you can head to the Valuer General’s website and run a valuation search (https://www.valuergeneral.nsw.gov.au/).
Don’t get caught by the removal of clause 14.4.2
Clause 14.4.2 of the Contract for the Sale and Purchase of Land outlines how land tax is to be adjusted between the vendor and purchaser. It states that the adjustment should be based on the amount that would have been payable at the start of the year, assuming that the person who owned the land owned no other land.
This essentially means that if land tax is noted as being adjustable on the contract but the property value falls below the threshold for land tax liability to kick in, you would not have to pay any land tax contribution to the vendor.
The purpose of this clause is to protect purchasers from having to pay the vendor’s land tax if they would not ordinarily have to pay it. Vendors will however in a lot of circumstances remove this clause in their special conditions meaning that you will still have to pay land tax on the property, even if it falls below the land tax threshold.
If this is the case, make sure that your lawyer or conveyance requests that this clause be removed from the contract.
If you have questions on land tax, please get in touch with our team of conveyancing lawyers. We are always happy to help.