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June 2, 2021

What is Land Tax and How is It Calculated?

Buying a property in Australia comes with various charges. For instance, Australian citizens need to pay an annual tax on the property they buy. The land tax is actually a state tax. Each state has different rates, calculation periods, and tax application criteria. Therefore, based on the land’s location, Australian landowners need a proper introduction to how land tax works and how it’s calculated.

Before diving into different states' land tax calculations, let’s discuss how land tax in Australia works.

What is Land Tax?

Land tax is a tax that an owner pays for their property each year. The local government or your state are the ones charging this tax. There is an exception to this rule applicable to Northern Territory Australian citizens who don't pay taxes at all.

Generally, the land tax is levied at the end of the year. But, it also depends on the state where your property is located and the land your home is built on.

How is Land Tax in Australia Determined?

Your property's unimproved value calculates the land tax amount that Australians need to pay. That is, unless they are free from any tax obligations. The land's unimproved value' refers to the land’s market value under normal conditions and suggests that no structural improvements have been made.

Most states in Australia charge land tax on a sliding scale. When the owner's land value passes the exemption threshold, they will start paying land tax. The state or the council where your property is located determines the land's value. Usually, the owner is charged a land tax that includes:

The base sum + a percentage for every dollar of the land’s value that’s above the threshold.

Different Land Tax Criteria in the Different Australian States

As we already mentioned, Australian land tax varies from one state to another.

Let’s see how different states calculate land tax.

Land tax in New South Wales

The state of New South Wales calculates land tax based on the owner's total taxable land value, above the land tax threshold. In 2021, this tax amount is $755,000. Yet, this doesn't apply to each property value, because combined land values don't exceed the threshold. If you own the land from 31 December 2020, and there are changes to your land in 2021, the changes will affect how much land tax you will pay the following year.

Land tax in Queensland

The land tax in Queensland is calculated based on the state’s total freehold taxable value. The calculation on the land value in Queensland is made each year, on 30 June.

Once the owner's land value is calculated, it will be determined how much land tax they should pay. Superannuation funds, companies, and trustees pay tax if the total value of the land is $350,000+ or more. Individuals pay tax if the total land value is estimated at + $600,000 or more.

Land tax in Victoria

If the total land value of the owner is $250,000 or more, they must pay a land tax. The land tax in Victoria is calculated each year, on 31 December. If any owner's land is free of tax obligations, that's not calculated as part of the taxable land they own. The land tax is determined depending on the total taxable value of the taxable land.

Another thing to keep in mind is that the state of Victoria has another tax- the Vacant Residential Land Tax. Most owners confuse this tax with land tax, but they are two different taxes. The Vacant Residential Land Tax refers to vacant homes. Consider using the correct tax calculator to precisely determine the tax according to the criteria of the state of Victoria.

Land tax in South Australia

Unlike other parts of Australia, South Australia made changes on land tax in 2020-21. The land tax in this state is calculated each year, on 30 June. The calculation includes the value, the use of the land, and the ownership as a whole.

Land tax in Tasmania

Owners in Tasmania can pay land tax each year, on 1 July. Taxable lands are all rental properties, shacks, commercial properties, and vacant land. According to Tasmania's tax rules, owners won't pay taxes on principal residential properties or primary production lands. To have classified your property as one of these, you'll need to apply for it. Bear in mind that rates vary if the value of your land exceeds $25,000.

Ready to start your journey on the right track? If you want to know more about other land tax states in Australia, feel free to contact one of our specialists.

CapTaxation is here to answer your questions and offer a helping hand in calculating your land tax!