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NSW Land Tax Update – Rates, Foreign Person Rules and How Land Values Are Assessed

 

This newsletter is in response to many queries I have received and provides information regarding land tax in New South Wales, including the current land tax rates, the definition of a foreign person, and—importantly—how land tax valuations are assessed, as this is a frequent source of confusion and dispute.

 

What Is Land Tax in NSW?

Land tax is an annual tax assessed on the unimproved value of land you own in NSW as at 31 December each year. It is administered by Revenue NSW and generally applies to investment properties, vacant land, and certain trust-held land, subject to exemptions.

 

Current NSW Land Tax Rates

a. General Land Tax

Threshold: $1,075,000

Rate: $100 plus 1.6% of the land value above the threshold

b. Premium Land Tax

Threshold: $6,571,000

Rate: $88,036 plus 2.0% of the land value above the premium threshold

Threshold: $6,571,000

Rate: $88,036 plus 2.0% of the land value above the premium threshold

Land tax is calculated on the aggregate taxable land value of all NSW land you own (excluding exempt land such as a qualifying principal place of residence).

 

Foreign Person Surcharge Land Tax

Foreign persons who own residential land in NSW are liable for foreign surcharge land tax in addition to ordinary land tax.

Surcharge rate: 5% of the unimproved land value

No tax-free threshold applies

This surcharge can apply even where no ordinary land tax would otherwise be payable.

 

Who Is a “Foreign Person”?

For land tax purposes, Revenue NSW applies a broad statutory definition.

a. Individuals

An individual is a foreign person if they are:

Not an Australian citizen, and

Not ordinarily resident in Australia.

i. A person is generally considered ordinarily resident if:

They have been physically present in Australia for 200 or more days in the 12 months ending 31 December, and

Their continued presence in Australia is not subject to a time limitation imposed by law (for example, a temporary visa).

Australian citizens are never treated as foreign persons.

b. Companies

A corporation may be a foreign person where:

Substantial interests are held by foreign persons, foreign corporations, or foreign governments.

c.Trusts

A trustee may be treated as a foreign person if:

The trust has foreign beneficiaries, or

Foreign persons have the capacity to benefit under the trust.

Trust structures are a common area of inadvertent surcharge exposure.

 

How Is Land Tax Valued?

Land tax is not assessed on market value or purchase price. It is assessed on the unimproved land value, being the value of the land excluding buildings and other improvements. Land values are determined by the NSW Valuer-General, not by Revenue NSW who value using mass valuation techniques, having regard to:

1. Comparable land sales

2. Zoning and planning controls

3. Permitted land use

4. Location and physical characteristics of the land

The Valuer-General uses a Three-Year Averaging is used to reduce volatility and uses the average of the land values for the current year and the previous two years. By doing this any sharp increase in a single year’s valuation may be moderated, and conversely, any reductions in land value may take time to be fully reflected.

 

Valuation Date

The land value used is generally the value as at 1 July in the relevant valuation year, which then feeds into land tax assessments for the following land tax year.

 

Lodging an Objection

If you believe that an assessment is incorrect, you are able to lodge an objection to the valuation and/or an assessment. Within 60 days of receiving your assessment you must lodge your objection which does not relieve you from paying the Land Tax by the due date otherwise you will be subjected interest on overdue payments.  If your objection is upheld Revenue NSW will on your instructions either refund the amount or credit the amount to any further liability.

 

Unexpected land tax liabilities often arise due to:

1. Increases in land valuations;

2. Incorrect assumptions about exemptions;

3. Changes in residency status; and

4. Trust or company ownership structures

 

I have successfully lodged objections for clients where an unreasonable assessment has been challenged. I am able to provide advice which can often prevent unnecessary tax, interest, and penalties in such cases.

 

If you or someone you know has questions regarding foreign person surcharge exposure or are considering purchasing an investment property or restructuring property ownership or related queries,  please do not hesitate in contacting me.

 

Wishing you a wonderful day,

 

Jeffrey Choy

JCL Legal

0419 233 670

[email protected]

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Legal Disclaimer: This guide is for informational purposes only and does not constitute legal advice.