When you’re considering moving to a new property, understanding property taxes is a necessity. After all, you can’t plan your budget if you don’t know how much tax you’re giving to the government in the form of taxation. Read on to find out more about property taxes, how to estimate property taxes and how to find out property tax burdens in Australia when you’re considering selling your home.
What Property Taxes Do I Owe in Australia?
There are several property taxes that apply in Australia, both to businesses and individuals. Property taxes are administered and levied by state and territory governments, which are responsible for setting land tax and council rates within their jurisdictions. These taxes include:
Land Tax
Land tax is the tax rate that a state charges for the land that you own. You don’t normally have to pay land tax on your home, but will have to do so for any additional properties that you own, such as rental properties. This applies to both developed and undeveloped land, so have a comprehensive idea of the amount of land that you and your organisation own. The rate of land tax varies depending on the state.
The land tax rate is determined based on the total value of all the taxable land you own as of a specific date, and land tax is calculated using thresholds and progressive rates set by each state.
Land tax liability is based on the total taxable value of taxable land, excluding exempt land such as your primary residence, so only non-exempt land is counted when determining if you exceed the tax free threshold. The tax free threshold applies to most individual owners, but some trusts or foreign owners may not be eligible for this threshold and may be liable for land tax from the first dollar of taxable property.
Rates
Rates are taxes that the local council (also known as local government) levies against people and businesses that own properties in those areas. A business that owns several properties is likely to receive a rates bill, with governments tending to send these out every quarter. Different local councils charge different levels of rates depending on their own method of calculation, so speaking to the council about their rates is ideal for understanding any charges.
Stamp Duty
When you buy a property, you have to pay stamp duty. This is to either the state or territory government and is a tax on certain documents that are involved in the property purchasing process, including property transfer documents. Stamp duty varies depending on your location, as the power to define rates is devolved to state authorities.
Main Residence Exemption: Do You Qualify?
The main residence exemption is a crucial factor for property owners in Australia, as it can significantly reduce or even eliminate your land tax liability and capital gains tax (CGT) when you sell your property. This exemption is designed to ensure that your principal place of residence is generally exempt from land tax and receives favourable treatment for CGT purposes.
To qualify for the main residence exemption, certain conditions must be met:
- Principal Place of Residence: The property must be your main residence, meaning it is where you and your family live most of the time. You can only claim one property as your main residence at any given time.
- Ownership Structure: The exemption typically applies to individuals, not properties held in company names, trusts, or by multiple owners unless specific criteria are met.
- Continuous Occupancy: You must have lived in the property for the relevant period. Short absences may be allowed, but extended periods away or renting out the property could affect your eligibility.
- Land Use: The land must be used primarily for residential purposes. If part of the property is used to produce income (such as running a business or renting out a section), only the portion used as your main residence may be exempt.
If you meet these conditions, your main residence is generally exempt from land tax, meaning you won’t have to pay land tax on that property. This exemption can also reduce your CGT liability if you decide to sell, as the capital gain on your main residence is usually not taxed.
However, if you own multiple properties, only one can be nominated as your main residence for land tax purposes. Investment properties, holiday homes, and vacant land are typically not eligible for the main residence exemption and may be subject to land tax and CGT.
It’s important to review your situation each financial year, as changes in how you use your property or periods of absence can affect your exemption status and overall tax liability.
How do I Estimate my Land Taxes in Australia?
It is useful to know how to estimate property taxes. As with many different forms of fiscal policy, property tax is one that is constantly adjusting depending on the needs of the government. For example, when reducing the rate of tax or increasing the threshold for payments, the government actively encourages people to invest in property.
The same applies the other way around, with landlords discouraged from owning more and more properties through the use of higher levels of taxes. The thresholds in New South Wales, for example, have changed as follows over the past few years:
| Year | General Threshold | Premium Threshold |
|---|---|---|
| 2022 | $822,000 | $5,026,000 |
| 2021 | $755,000 | $4,616,000 |
| 2020 | $734,000 | $4,488,000 |
| 2019 | $692,000 | $4,231,000 |
| 2018 | $629,000 | $3,846,000 |
| 2017 | $549,000 | $3,357,000 |
| 2016 | $482,000 | $2,947,000 |
| 2015 | $432,000 | $2,641,000 |
For further details on property tax estimation, you can refer to related information and resources provided by official government websites like Service NSW.
FAQs about Property Tax
Have any questions about Property Tax? Pherrus Financial Services can help.
Who pays land tax in Australia?
Anyone who owns land that is not their home pays land tax.
This is the case whether the land earns revenue or not, incentivising people to develop and monetise all of the land they have available.
How do you calculate land tax in NSW?
In NSW, the government publishes thresholds of land value that define the amount of tax that you pay.
On exceeding the general threshold you pay $100 plus 1.6 per cent of land value above the threshold, up to the premium threshold, at which point you pay $67,364 plus 2 per cent of land value above the threshold.
How often do you pay land tax in Australia?
Land tax is an annual tax that is levied at the end of the calendar year, so you pay all of your land tax for any given period in one large annual payment.
Which states in Australia pay land tax?
All states in Australia have a land tax, with the most recent introduction of land tax in the country being Queensland’s Land Tax Act of 2010.
The first was South Australia’s Land Tax Act of 1936, with a raft of other states joining in early 2000s.
Which state has the highest land tax in Australia?
Starting next year (2023) the highest level of land tax in Australia will be New South Wales, with a land tax surcharge of 4%.
This is above Victoria, Queensland and Tasmania, which each have half that level of land tax levy.
Find Out Your Property Tax Ahead of Your Next Move
Calculating property taxes can be a complex process, as there are so many different calculations to complete that all refer to different parts of your property.
If you’re interested in making property tax calculations simpler and making the most of your property transactions, get in touch with the Pherrus team today.
Get in touch today to gain access to expert financial support and actionable insights that can help your business succeed. Fill out our online form or call (02) 9099 9109 to speak with our team.
