Land Tax: What Could It Cost You?

Green, ecological house, real estate concept. Grass land, blue sky. Clean energy, environmentEven if you own your own home, there’s a good chance you’ve never heard much about land tax, but if you are planning to invest in property on any level, it is something you should make yourself aware of before falling foul of a costly evaluation.

Each state’s Office Of State Revenue administers land tax, with their own set of thresholds and rates that apply. In essence, land tax is a tax on property owners over a certain level. In Queensland, the current threshold is $600,000 for individuals ($350,000 for companies, trustees or absentees). This limit is based on the valuation of your land, not the value of the property overall (including the house). You should be receiving annual valuations from Queensland’s Valuer-General if you are a property owner.

For the vast majority of homeowners, an exemption may apply. Also,the value of a single block of land will be under the threshold, so there’s nothing to worry about (the average land value in Brisbane in 2013 was only $320,000); however, if you start adding investment properties, chances are you will quickly get close to, if not over, the threshold.

Below are details of the tax rates that apply if you exceed the threshold.

  • $600,000–$999,999: $500 plus 1 cent for each $ more than $600,000
  • $1,000,000–$2,999,999: $4,500 plus 1.65 cents for each $ more than $1,000,000
  • $3,000,000–$4,999,999: $37,500 plus 1.25 cents for each $ more than $3,000,000
  • $5,000,000 and over: $62,500 plus 1.75 cents for each $ more than $5,000,000

You can invest in apartments rather than houses. The value of land for an apartment complex is distributed amongst the apartment owners, so even if the value of a large block in a prime location is well over the threshold, once it is divided up amongst the many owners the value is likely to be far more manageable. Consider the following: an apartment complex on a $3,000,000 block of land that has 30 units (land value for each – $100,000), as opposed to a house on a $300,000 block (land value – $300,000).As you can see, creating a portfolio of properties could result in fairly hefty tax liabilities. How can you minimise this risk? There are a couple of strategies you can follow that will allow you to avoid land tax.

You can invest in several states. Because land tax is state-run, only properties in your portfolio within a particular state will be included in your valuation for that state. Therefore, you can develop an overall property portfolio with a total land valuation well above any state’s particular threshold without penalty (so long as you take care not to exceed any state threshold). Take care to consider each set of rates and thresholds, as they vary from state to state.

By Jennifer Lowe

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