Of all the costs associated with owning an investment property, land tax is easily one of the most overlooked. In fact, it is likely that many investors with smaller portfolios would not know anything about this potential expense. There would also be some who know what land tax is but assume it will never apply to them.
To help address this, we want to take a closer look at how land tax works. We will explore why it is such an important consideration for you as an investor, particularly as your portfolio grows. We will also share some of the strategies successful investors use to manage their land tax obligations.
What is land tax and how is it calculated?
Put simply, land tax is another fee you may need to pay when you own investment property in any jurisdiction other than the Northern Territory. It is administered by each state and territory government and applies to every property other than your primary residence. While the exact rules vary slightly between jurisdictions, properties used for primary production (i.e. farms) are also usually exempt from land tax.
How your land tax bill is calculated will depend on where your property is located. That said, the amount you need to pay will always be based on just the land component of your applicable properties. All states also have a tax-free threshold and most use a sliding scale, with higher tax rates for higher value portfolios.
Some of the key factors that change from jurisdiction to jurisdiction are:
For the exact details of your land tax obligations, we recommend checking out the website of the appropriate State Revenue Office.
There are a couple of other important points to note about land tax. Most significantly, unlike stamp duty, it is an annual fee that will need to be calculated and paid every year. Also, it is based on the site value, or unimproved value of the land, as assessed by the Valuer General.
Strategies for managing your land tax liability
As a general rule, the more land you own, the more land tax you will need to pay. And, due to the tax-free threshold and sliding scale most states use, your obligation can increase quickly as your portfolio grows. As such, most successful investors employ a range of strategies to help manage the amount they need to pay, including:
The best approach for you will depend on your investment goals and financial situation. As such, it is important to consult an experienced financial adviser when planning your land tax management strategy.
Want more information?
If you would like to learn more about land tax, or any other investment property expenses, contact Search Party Property. Our highly experienced team are experts in managing these costs and can help you understand and plan for them. We can also support you to sustainably grow your portfolio – simply set up your free property investor session to get started.