We have had several clients lately asking us about land tax when purchasing or selling a property.
The main question we are asked is ‘Is land tax the same as stamp duty?” and the answer is no.
Stamp Duty (which is now known as transfer duty) is a one-off payment which a purchaser or transferee is required to pay when purchasing a property whereas land tax is a tax levied on the owners of land each year. Paying land tax on property you own in NSW depends on what land you own, what it is used for, and its total value as at midnight on 31 December each year. Land tax applies to land regardless of whether or not income is earned from the land.
Land owned includes vacant land, residential houses and units, holiday homes, company title units, industrial units, commercial properties including factories, shops and warehouses and any land leased from State or Local Government.
The threshold for 2018 is $629,000.00 and the land tax is calculated on any land owned above that threshold. If the combined land you own at 31 December does not exceed the threshold, no land tax is payable.
There are several exemptions and concessions available and these include your principal place of residence or land intended to be your principal place of residence. This includes a deceased estate if you are the Executor and the deceased’s property was his/her principal place of residence at the time of death, land tax is exempt for two years after the date of death or until the land is transferred to an executor or beneficiary of an estate, whichever occurs first.
Other exemptions and concessions apply to land that is primarily used for primary production.
However, the question that arises a lot when our clients are purchasing property from owners of land, particularly from developers that are liable to pay land tax is ‘why do we have to pay a portion of the vendors (sellers) land tax?’ The answer is simply for economic reasons for the owner of the land. If they can off load as much as they can, to increase the profit they make on the sale, they will.
When we receive the contract from the vendors solicitors, one of the first things that we check for is to see if there is a land tax adjustment required under the contract. If there is, we usually ask that this be deleted as the land tax is in addition to the purchase price and our clients (as purchasers) have not budgeted to pay part of the vendors land tax on settlement.
If it is not agreed to be deleted, we would usually ask that the land tax be capped at a certain amount as it is hard to determine the value of land that the owner/developer owns.
For example, if the land tax was capped at $1,200.00 and the settlement fell in January, the purchaser would be liable for almost the whole amount, if settlement was in June, the purchaser would pay approximately $600.00, however, if settlement was to be effected in December, there would be only a very small portion of land tax to be paid by the purchaser.