The impact of the changes to land tax on investment property depends on several things.
- How many properties you own.
- The value of the properties (land value)
- If you own houses or apartments.
- If you are an Australian tax paying resident or not.
Land Tax rate changes came into effect in Victoria on 1st January 2024
The previous land tax structure was adjusted to catch more property investors, secondary property owners (holiday homes) and increase the take from those already paying it.
Quick land tax refresher.
Land Tax is calculated on the land value of a property as assessed by the council. Many types of property such as the principal place of residence (family home), farms and charities / religious institutions are exempt from land tax (and remain so).
Councils assess the land value of every property which is shown on the council rates notice along with the capital improved value and net annual value.
Land Value is the unimproved value of the property. That is, it assumes absolutely nothing is built on it.
For apartments, the land value is their relative percentage of the total land value on which all the lots are built. For many owners, the land value of their apartment is less than the current land tax threshold of $300,000. In this case they pay no land tax at all but that threshold has now changed.
Land tax is assessed on a multiple holding basis within each state so if you own multiple properties that attract land tax in Victoria, the amount is assessed on the total land value.
What changed?
On 1st Jan 2024, the land tax free threshold dropped from $300,000 to $50,000. Also, if the land value of your investment property is over $300,000, you now pay a higher amount of land tax.
As an example, if your investment apartment’s land value is $150,000 you have previously not been paying land tax. But after 1st Jan 2024, you do.
Also, the absentee investors (foreign owner) surcharge increased from 2% to 4%.
How much is the new land tax?
Here are the land tax rates from 1st Jan 2024.
| Land Value | Land Tax |
| Less than $50,000 | NIL |
| $50,000 – $100,000 | $500 p.a. |
| $100,000 – $300,000 | $975 p.a. |
For land values over $300,000, land tax is calculated on a sliding scale. Land tax prior to 1st Jan 24 increased by an additional $975 plus 0.1% of the land value over $300,000.
The assessed land value of most one and two bedroom apartments will be under $500,000 depending on how many apartments are in the development and the underlying value of the land.
Who will end up paying?
Property investors incurring a new or additional land tax will need to decide if they,
- Pass on the extra cost to renters
- Absorb the cost or
- Something in between.
At a broader market level, the additional tax is making some investment owners think about selling. It is also discouraging potential investors from buying. Consequently, it is reducing the total pool of rental property available. Therefore, market rents are being pushed higher, regardless of investors decision to pass on the increase or not. Supply and demand is a much more powerful market force.
Whist unfair, it is inevitable that renters will pay most of this tax by way of higher rent. Given the rental market is already tight and living costs are rising, this extra cost that will hit renters pockets is very unfortunate and (I assume) an unintended consequence of the impost intended for investment owners.
Further land tax issues.
With the rise in property prices over the last 5 years, land tax is looming as a bigger issue for many property investors. (Note: there is no land tax on your family home).
Land tax is assesed on the land value only of a property so it disregards the value of the improvements. If you own an apartment, the land value of that apartment is the total value of the land the building is on divided amongst the apartment owners proportionally. Consequently the land value of an individual apartment may be very small and so it sits under the land tax threshold of $300,000 (in Victoria in 2023 but changed to $50,000 in 2024)
A rise in property prices is actually a rise in the underlying land value of that property. The replacement cost of the buildings on that land may rise incrementally or decline. Building values often depreciate over time depending on their quality and architectural appeal.
The value of an apartment, comprises a relatively small percentage of land value comparted to a house, which is part of the reason apartment values don’t tend to rise at the same rate as houses. While this may seem like bad news for investment owner there is also good news.
In Victoria, land tax was previously levied on investment property with a land value under $300,000 but from 1st Jan 24 that dropped to $50,000. Therefore, for many apartment investors, land tax was not even on their radar. But for property investments with a larger land component, the recent surge in property values and threshold change, this is causing some real headaches.
While it may be argued an increase in land tax is offset by an increase in total capital value, many investment owners live off the income of their real estate. They may be relatively asset rich and cash poor, making the land tax bill problematic. Also land tax is calculated on a multiple holding basis across all assets, ignoring variations in holding entities with common beneficial interests. For most aparmtment investors the new $50,000 threshold is being quickly passed.
Land tax calculator
Land tax for Absentee owners is calculated at a higher rate than Australian tax payers. As an example, (using the SRO land tax calculator), a property investment with a taxable value of $500,000, will incur a land tax bill of $10,775 for an absentee owner, compared to $775 for an Australian tax payer. (using a 2023 assessment year). This was highlighted in a recent SMATS Group (Australian Property, Tax and Financial advisers) news article.
This enhances the case for the income return attributes of apartment investments, and with rents rising this will continue to improve throughout 2024.
30 Responses
Land Value(s) in NSW for 2023 (in my land tax assessment) have increased by 24% over those of 2022
I understand that this years (2023) valuation was at 1 July 2021 in terms of the Valuation Act in NSW
In NSW Sydney Land and house prices for the year 2021 -2022 peaked at 27.7% as at January 2022 according to Core Logic Home Value Index. Since then, they record the decline from the peak to December 2022 at 12.7%
I assume that Land Values for the year 2024 MAY partially reflect part of that decline of 12.7%
However, from an investment point of view the tax increase now in the current NSW Land Tax Assessment Notices over last year is not sustainable and the only option for an investor is to pass on the tax increase onto the tenants, further affecting the years inflation figure.
As an investor, relief is needed now not in another 12 month’s time.
Not bad Mr Andrews, you mismanaged our economy during Covid, then froze any due rent rises for tennants. This left us Landlords carring that extra cost & in some cases, the tennant couldn’t even pay thier due rent, and for the hardship the Landlords endured over this period, your Goverment is going to force up rent, & reduce investment appeal. We may as well sell our property & put it into our Superannuation.
My land tax now equates to $166 per week, how can I pass this on to my tenant?
It is way outside an acceptable rent rise.
You can’t pass on the tax directly Mat. That said many business are passing on the increased cost of wages, compliance and other inputs to their customers by way of higher prices which is showing up in inflation. You can charge the market rent for your apartment what ever that may be. If all landlords costs are going up it is pretty obvious what will happen.
I bought a 2 unit site with a friend in Victoria.
It is in joint names.
It is on one title, but separately rated by the council.
I live in unit 1 as my PPR.
my friend lives in unit 2 as his PPR.
We have been charged land tax on 50% of each other’s unit. $975 each.
I’m retired and really can’t afford the extra tax.
There is no investment income as they are PPR’s.
Do we have to pay land tax or are we exempt somehow?
There is only one title and no income, can you clarify please.
Would really appreciate your help.Cheers.
That is a tricky one alright Jacqueline. Sounds like a case for special dispensation from the SRO. Let us know how you get on.
Hey Andrew, thanks for breaking down the changes to land tax on investment properties! It’s definitely a hot topic for property investors. The drop in the tax-free threshold from $300,000 to $50,000 and the increase in surcharge for absentee investors are significant shifts. It’s interesting to see how these changes might impact both investors and renters in the market. The discussion around passing on the cost to renters versus absorbing it adds another layer to the equation. Looking forward to seeing how the market responds to these adjustments in the coming months!
Does a mortgage effect the land tax.? Site value is on my rental is $230K my mortgage is $160K. Many thanks
No – having a mortgage doesn’t have any impact Ralph. The land tax is assessed on the Site Value irrespective of any other liabilities.
Here’s a no brainer: given the Andrews Govt completely mismanaged, I would suggest all the Ministers collectively pay for this. Besides, they all have ridiculous sky high salaries and sit on their arses all day going absolutely nothing.
I have a townhouse that I bought as part of a property trust 24 years ago now the trust isn’t trading all the properties but the townhouse has been sold to pay off the loan the townhouse is now my principle residence but I still pay land tax on it I have been advised to change this would cost me stamp duty of over $30k can I ask for a special dispensation from land tax ?
Hi Alexander – I would speak directly to the SRO for their advice or a tax accountant. It seems logical that you should get a special dispensation to either be exempt from land tax as it is your PPR or from stamp duty to transfer it to your personal name. Also if the trust was wound up the poroperty should pass to the unit holders which I assume is you. Another accountant question.
If it is land tax why isnt it calculated on the amount of land the property sits on? What an excuse to charge people an absoribent amount for a small footprint. The changes allow the government to charge absolutely everyone who owns a 2nd dwelling. I mean what property is less than $50k – what a ripoff!!
Thanks Alethea – the fixed amounts of $500 and $975 are a big percentage of the site value as an annual payment.
We have a super fund that has purchased two adjoining commercial properties using a bare trust for both. One was purchased a couple of years before the other. One of the properties we are owner occupiers. the adjoining property has been leased. We used standard REIV leases from our super fund to our business and to the leasing tenant. Under the outgoings clause it states:
(b) land tax calculated on the basis the premise or the building of which the premises forms a part is the only land owned by the landlord (single Holding)
Previously, we have paid the land tax from our Super Fund, but reading this clause I think we should be able to have the tenants pay the land tax and then claim it as a business expense? can you please clarify?
Getting a bit technical for me Peter and a question for lawyer. My only comments though is the tenancies may be under the Retail Tenancies Act (yes often office comes under this act) Therefore the act will govern the rules regardless of the lease. But yes landtax can only be recovered on a single holding basis.
With repsect to an apartment, is land tax in Victoria calculated on the value of the apartment, or the value of the land thst the apartment complex sits on, whicih would then mean the owners divide up paying the land tax. in this case perhaps the Unit Entitlement in accordance wih the OC would be used to work out each owners tax liability.
thanks Grahame
Hi Grahame – Land tax is calculated on the land value. So yes in an apartment building it is divided up betweeen all the owners. The way it is split up is not the table of entitlement and liability but the relative rental value of each apartment. So this has regard to things like the view or access to open space etc.
Thanks for this clear article. My questions is about small studio apartments in Melbourne (one room plus bathroom) – I saw somewhere that those 30 or 40 sq metres in size are exempt from land tax. Is this correct?
Thank you
Thanks Rob – No not correct sorry. Land tax is assessed on the site valud of the property regardless of its size. Obviously smaller properties will have a lower site value and if their site value is less than $50,000 then they wont attract stamp duty.
Thanks for this clear article. My questions is about small studio apartments (only one room plus bathroom) in Melbourne – I saw somewhere that those 30 or 40 sq metres in size are exempt from land tax. Is this correct?
Thank you
Hi Rob – No not to my knowledge. The only way that sort of apartment may be exempt is if its Site Value (as per the rating valuation) was under $50,000. Hope that helps 😊
Hi Andrew,I have an apartment I had been living in as my principal place of residence for 12 years.I rented it out in May 2024.I don’t own any other property in Victoria.My apartment site value is $290000.I am wondering if I need to pay land tax or exempt from it.
I haven’t received any letters from Victoria SRO so far.Do I need to inform them if I need to pay?
Thanks.
Hi Leslie
I am a little out of my depth providing specific tax advice but my understanding is that as your property is no longer your PPR (pricipal place of residence) it will now attract land tax. I will leave it up to you to decide if you contact the SRO or not. 😉
Andrew
Hi, Is Victoria charging more for land tax if a landlord lives and owns other properties outside Victoria (noting what was said about multiple properties)?
Hi Merle – As I understand it there is no accumulation of property values between states for the purpose of calculating land tax. Some time ago the Qld government suggested they were going to do exactly that but backed away from it due to the public backlash.
I live in ACT but intends to buy a unit/property in Victoria where I shall live for more than a month in a calendar year. I shall not be deriving any rental income from the property. I do own other investment Properties in ACT/NSW. Will the property in Victoria be treated as holiday home and will it be subject to land tax?
Hi Zafar – A little bit above my pay grade but my understanding is, if it is not your principal place of residence then yes it will be subject to land tax. Remember it is calculated on the site value (land value) of your property.
Hey Andrew,
Great and informative article. We are about to purchase a two-bedroom apartment in a low rise complex. I understand the split out of the land taxes against all the owners, but is there a way to know what this amount is before purchasing? Does in continually change?
Thanks Derek – The land tax on each apartment is assessed individually and is calculated on the site value of each individual apartment. You can find the site value (or land value) on the council rates notice in the contract of sale). You can do the Land Tax calculation on the SRO website. Interestingly the site value is an alocation of the total site value between each apartment. I assume you know that if you are buying it as your principal place of residence there is no land tax (at the moment!)