State and territory taxes
Land tax
Land tax is an annual state and territory tax on the value of land you own above a threshold, administered by state revenue offices, with exemptions and rates that vary by jurisdiction.
Land tax is charged each year by state and territory governments on the unimproved or taxable value of land owned, generally above a threshold. It is administered by state and territory revenue offices, not the ATO. Because every jurisdiction has its own law, the thresholds, rates, valuation methods and exemptions differ, and you must check with the revenue office where the land is located.
The tax is based on the value of the land itself, not the buildings on it, and it is assessed on the owner, normally as at a particular date each year. Owners with several properties may have their holdings added together, and the tax is then calculated on the combined value. Trusts and companies can be taxed at higher rates or have lower thresholds in some jurisdictions, so the way you hold land can matter.
Common exemptions include the owner's principal place of residence, and in many states land used for primary production. Other exemptions or concessions may apply to certain charities, community uses and some other categories. Whether you qualify depends on the particular law and on how the land is used, so it is wise to confirm with the revenue office rather than assuming an exemption applies.
Land tax is relevant to GST in a limited way. The tax itself is a government charge and is not subject to GST. However, residential rent is input-taxed, so landlords who rent out residential premises cannot claim GST credits on costs connected with that rent, and land tax has no GST in it to claim anyway. Commercial property owners registered for GST charge GST on rent, while land tax remains a separate cost they may pass on under the lease.
For income tax, land tax on land used to earn rent or business income is generally deductible in the year it is incurred. Land tax on vacant land held for private purposes is not deductible, and on land you plan to develop or sell, the deductibility can depend on the circumstances. Keep the assessment notices, since they support your deduction and help if the ATO asks questions.
A common mistake is assuming land tax is paid with council rates or that an exemption applies automatically. Another is forgetting that trusts and companies may face different thresholds. This is general information only, so confirm your situation with your state or territory revenue office or a registered tax professional.
Worked example
Assume, purely for illustration, an investor owns a rental property with a taxable land value of $900,000 in a state where the land tax assessed is $3,000 for the year. The land tax is paid to the state revenue office. Because the property earns rent, the $3,000 is generally deductible against rent in the income tax return, but there is no GST in the land tax and no GST credit.
Practical tips
- Check the thresholds, rates and exemptions with the revenue office in the state or territory where the land is located.
- Be aware that holding land through a trust or company may change the threshold or rate.
- Keep land tax assessments, since they support your deduction for income-producing property.