For any homeowner, occupier of landlord, Australia’s current lifting in property values is welcome news. But for many, the lifting in property prices can cause a unintended problem with Land Tax values and the resulting tax increasing rapidly.
Land Tax is a State Tax and is not charged on the property you are living in by any of the States, only properties that are rented or left vacant. There is also a tax free allowance in all States which usually results in a modest investment property still being under the levels where Land Tax starts to become payable.
As a result, many Australians are not even aware of the fact Land Tax exists. This can be problematic if you moved out of your family home and forgot to tell the State Land Tax that it was now taxable, as when they find out they will back tax you and usually hit hard with late payment penalties.
For many landlords, the uplifting of valuations has been an unwelcome surprise and has dramatically increased the Land Tax payable, in many cases double or triple what it was just a few years ago.
You have the right to question the valuation, which is usually based on the “unimproved value” of the land (as if any buildings or structures were not there) but it is a hard fight to win.
Regardless, this increasing cost of ownership needs to be monitored and managed, and it is especially important if you are considering a new property purchase, where you should ask in advance what the Land Tax value is and calculate that cost if you intend to rent the property out.
Land Tax is a tax deduction against your rental, but that is small comfort if it is soaking up the lion share of your property rental.
Old houses with modest dwellings are often the worst affected as the land value is often substantial, where as an apartment is usually a much lower cost as the value of the underlying property is proportioned over all of the apartments based upon it and shared amongst the many owners in the complex.
Land Tax should not be a deterrent to acquire, especially if you intend to live in the property straight away or eventually, but it should definitely be part of your overall decision making so you are fully aware of the cash flow impact it may cause.
If you currently own a property in Australia and aren’t living in it, then it is your obligation to check if there is any Land Tax payable, so if you aren’t already paying State Land Tax where your property is then be sure to find out if you should be or not.
