What is Land Tax?

Land tax is a state and territory-imposed tax on the unimproved value of taxable land owned by individuals, companies, and trusts. It is calculated annually based on a threshold value determined by each state or territory. The tax applies to investment properties, commercial land, and vacant land but not to a person’s principal place of residence (PPR) in most cases.

Why Does Land Tax Exist?

State governments levy land tax to:

1. Generate Revenue for Public Services – It funds essential infrastructure, education, healthcare, and emergency services.
2. Encourage Efficient Land Use—Governments aim to reduce land banking and promote property development by taxing unused or underutilized land.
3. Ensure Fair Contributions – Unlike income tax, which depends on earnings, land tax targets wealth held in land assets, ensuring that those benefiting from land ownership contribute to public funding.

How is Land Tax Calculated?

Land tax is assessed based on:

• The unimproved value of land (as determined by the Valuer-General).
• Ownership structure (individual, company, or trust).
• The total taxable value of land holdings.
• State-specific thresholds and rates.

State-by-State Overview of Land Tax in Australia

Each state and territory in Australia has its own land tax rules, exemptions, and thresholds.

State/Territory	Tax-Free Threshold	Rates	Special Considerations
New South Wales (NSW)	$822,000	1.6% on land above the threshold, 2% above $5.026M	Special trusts pay full land tax without a threshold.
Victoria (VIC)	$50,000	Starts at 0.2%, rising to 2.55% for land over $3M	Trusts face surcharge rates unless beneficiaries are notified.
Queensland (QLD)	$600,000 (Individuals), $350,000 (Companies/Trusts)	Starts at 1% above threshold, up to 2.75% for land over $10M	Land tax is calculated based on total Australia-wide landholdings.
Western Australia (WA)	$300,000	0.25% to 2.67%	No land tax on principal residences.
South Australia (SA)	$450,000	Starts at 0.5%, increasing to 2.4% over $1.35M	Land owned by trusts is subject to higher tax rates.
Tasmania (TAS)	$50,000	Starts at 0.55%, up to 1.5%	Principal places of residence are exempt.
Australian Capital Territory (ACT)	No Threshold	A flat rate of 1.1%	ACT does not use a threshold-based system.
Northern Territory (NT)	No Land Tax	–	NT does not currently levy land tax.

Who is Liable to Pay Land Tax?

• Property Investors – Owners of multiple investment properties must pay land tax if their total taxable land value exceeds the state’s threshold.
• Companies and Trusts – Subject to lower land tax thresholds and higher rates in most states.
• Foreign Owners – Some states impose additional surcharges on foreign landowners.

Common Exemptions from Land Tax

• Principal Place of Residence (PPR) – In most states, land tax does not apply to an individual’s home.
• Primary Production Land – Farms and rural properties used for commercial agriculture are usually exempt.
• Charitable and Not-for-Profit Organizations – Land used for charitable, religious, or educational purposes may be exempt.

Purpose of Land Tax

1. Revenue Generation for State Governments – Provides funds for essential public services and infrastructure.
2. Encouraging Property Development – Discourages land banking by imposing costs on underutilised land.
3. Ensuring Fair Wealth Distribution – Targets landowners rather than wage earners, making it a progressive form of taxation.
4. Managing Foreign Investment – Some states use land tax surcharges to regulate foreign property ownership.

Land Tax Planning Strategies

• Structuring Ownership – Holding properties in different entities (e.g., trusts, companies) to maximise land tax thresholds.
• Property Location Selection – Investing in states with higher thresholds or no land tax.
• Utilising Exemptions – Ensuring eligibility for PPR or primary production exemptions.
• Timing Property Sales – Selling land before June 30 to avoid additional land tax in the following year.

Conclusion

Land taxes are an essential revenue tool for state governments. They encourage efficient land use while ensuring that landowners contribute to public services. Investors should carefully consider the land tax implications of their property portfolio and implement strategies to minimise their tax burden. Consulting a property tax accountant is essential to optimising tax efficiency and compliance.

Example: Building a Property Portfolio and Minimizing Land Tax in Australia

Building a tax-efficient property portfolio requires strategic planning across different ownership structures and multiple states. This ensures that land tax thresholds are maximised and land tax grouping is avoided. Below is a step-by-step investment strategy that minimises land tax exposure.

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Step 1: Define Investment Goals

• Goal: Build a property portfolio with a mix of capital growth and rental yield properties.
• Objective: Minimize land tax, maximise borrowing capacity, and structure investments tax-efficiently.

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Step 2: Choosing Ownership Structures

Use separate legal entities for each property purchase to avoid land tax grouping. The best structures include:

1. Individual Ownership (Spouse or Family Members)
   • Each individual’s holdings are separately assessed for land tax.
   • Benefit from the highest tax-free land tax threshold in most states.
   • Best for high-growth properties where a 50% CGT discount applies.
2. Separate Companies for Different Properties
   • Companies are assessed separately for land tax.
   • Useful for properties with substantial rental income (as companies don’t get CGT discounts).
   • It avoids personal liability and keeps borrowing options open.
3. Discretionary Trusts with Different Beneficiaries
   • Each trust is separately assessed if they have different beneficiaries and trustees.
   • Best for asset protection and income distribution flexibility.
   • It can be aggregated for land tax if beneficiaries are the same across trusts.
4. Unit Trusts for Joint Ventures
   • Suitable for joint investments without exposing all assets to risk.
   • Land tax treatment depends on the unit holders (unit trusts with discretionary trusts as unit holders can still be aggregated).

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Step 3: Diversifying Across Different States

Each state has different land tax thresholds and rules. By spreading investments across states, you maximise tax-free thresholds and avoid land tax grouping.

Portfolio Plan – Example

State	Property Purchase	Ownership Structure	Land Tax Threshold	Tax Strategy
NSW	$800,000 House	Spouse 1 (Individual)	$822,000	No land tax due to threshold.
VIC	$600,000 Apartment	Company A	$50,000	It pays land tax but at corporate rates.
QLD	$500,000 Townhouse	Discretionary Trust A	$350,000	Stay under the trust land tax threshold.
SA	$450,000 Duplex	Company B	$450,000	Stays within company land tax-free threshold.
WA	$300,000 Unit	Spouse 2 (Individual)	$300,000	There is no land tax due to individual threshold.
NSW	$1,000,000 House	Discretionary Trust B	There is no threshold for trusts	Subject to land tax but structured separately from other assets.

Key Strategies Used:

✅ Individual ownership for NSW and WA properties (maximising tax-free thresholds).
✅ Separate companies for VIC and SA (each assessed independently).
✅ Two different discretionary trusts in QLD and NSW (structured to avoid aggregation).
✅ Spreading properties across states to maximise land tax-free thresholds.

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Step 4: Managing Borrowing Capacity

• Lenders assess loans differently based on ownership structures.
• Individual borrowers often get better loan terms than trusts or companies.
• Companies can have higher borrowing capacity but stricter serviceability requirements.
• Trusts need guarantors, but income splitting is allowed for tax efficiency.

Loan Structuring for This Portfolio:

• Spouse 1 applies for a mortgage for the NSW house (better individual loan terms).
• Company A and Company B secure commercial loans for VIC and SA.
• Discretionary Trust A secures finance with a corporate trustee as the borrower.
• Discretionary Trust B uses different beneficiaries to prevent aggregation.

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Step 5: Future-Proofing Against Land Tax

1. Avoid Beneficiary Overlap in Trusts
   • Some states (like NSW) will aggregate land holdings if multiple trusts have the same beneficiaries.
   • Use different family members as primary beneficiaries to prevent grouping.
2. Monitor Legislative Changes
   • States change land tax laws frequently (e.g., QLD’s failed proposal to tax Australia-wide land holdings).
   • Regularly review the thresholds and rates to restructure holdings when needed.
3. Use Trusts and Companies to Separate Assets
   • Trust-owned properties are separate from personal assets.
   • Companies offer asset protection and allow profits to be reinvested at lower tax rates.

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Outcome:

✅ Six investment properties across different states.
✅ No land tax grouping.
✅ Each entity is assessed separately for land tax.
✅ Optimal borrowing structure with risk diversification.
✅ Balanced mix of capital growth and rental yield properties.

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Conclusion

By strategically using multiple entities and investing across different states, you can maximise tax-free thresholds while avoiding land tax grouping. This approach ensures tax efficiency, borrowing flexibility, and long-term portfolio growth.

Would you like assistance in setting up trust companies or reviewing loan strategies? 🚀