Land Tax 101
Land tax 101
Land tax is an annual expense you need to factor into your other outgoings as a property investor. It’s calculated based on the value of your land holdings above a specific threshold. Value thresholds and when land tax is calculated are different in each state, so make sure you stay up to date on the latest developments in your start. Below is an overview of everything you need to know about land tax.
How is land tax calculated?
Land tax is levied at the end of each financial year or calendar year, depending on where the property is located. The land tax you’ll pay is calculated based on your property’s ‘unimproved value’. The ‘unimproved value’ of land is its market value under normal sales conditions.
The tax is levied on a sliding scale. Once the value of your land exceeds the exemption threshold, you are charged a lump sum plus a dollar or percentage of every dollar of the land’s value over the threshold. Your land will typically be valued by your State Government or local council.
In Victoria, for example, on land values of $600,000 to less than $1 million, $2,250 is payable plus 0.6 per cent of the land value above $600,000. Some states also impose additional premiums for land held by a trust or other structures, such as absentee owners.
Let’s look at an example…
Sally owns an investment property in Victoria that has a land value of $900,000 in 2024. Using the 2024 land tax year calendar, Sally owes $2,250 plus 0.6% of the amount over $600,000.
The tax payable is $2,250 + 0.6% x $600,000 = $5,850.
Is land tax a tax deduction?
Your principal place of residence will not attract land tax, but it will be levied on any investment properties that you own. Any land tax you pay on your investment properties is a tax deduction. Use your assessment notice from your jurisdiction’s revenue office to claim a deduction at tax time.
How should you budget for land tax?
As an ongoing annual tax on investment properties, you should set enough funds aside throughout the year to cover your land tax. If you’re unsure how much to set aside, review the previous year’s land tax assessments or speak with your accountant to estimate how much you should set aside.
No matter what type of investment property you own, you need to pay land tax each year. Proactively estimating your land tax assessment and setting those funds aside throughout the year is critical to ensure you’re keeping up with all the outgoings associated with owning investment properties. Talk to your accountant for advice on setting funds aside for land tax, and make sure you’re factoring this cost into any future plans you have to grow your portfolio.
Remember, this article is general in nature and is not financial or legal advice. Please consult
your professional financial and legal advisors before making any decisions for yourself.