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Land Tax: an update

Land Tax: an update

Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion.
Briefing Paper No. 5/2005 by Stewart Smith
South Australia was the first Australian state to introduce a land tax, based on the unimproved capital value of land, in 1884. Land tax was first imposed in NSW in 1895. In 1906, the then NSW Premier, JH Carruthers, abolished land tax altogether as part of his major reform of local government. The aim was to provide local councils with an independent revenue source, land tax, for which they no longer had to compete with the State. This situation existed until 1956, when the State again imposed a land tax on the unimproved capital value of freehold land and land held from the Crown on tenures such as conditional purchase, settlement purchase, or a lease in perpetuity.

Currently land tax is a tax levied on the owners of land in NSW as at midnight on 31 December of each year. In general, the principal place of residence or land used for primary production is exempt from land tax. Properties potentially liable for land tax therefore include: vacant land, including vacant rural land; holiday homes; investment properties; and residential, commercial or industrial units.

On 6 April 2004, the NSW Treasurer Hon Michael Egan MLC delivered a Mini-Budget in which he announced significant changes to land tax in 2005. Previously, NSW land tax had a tax free threshold of $317,000 and a rate of 1.7 % after that. From 1 July 2004, the threshold was abolished and new, lower tax rates were introduced.

The changes to the tax regime announced in the Mini-Budget have resulted in considerable disquiet amongst investors, many of whom are liable for land tax for the first time. Approximately 400,000 investors will be charged a tax on their investment or holiday properties for the first time. Opposition Leader John Brogden MP has stated that the Liberal-National Coalition will abolish the vendor duty and reinstate an indexed land tax threshold.

This Briefing Paper compares the land tax rates in NSW with other jurisdictions. States that have a tax free threshold include: Victoria (land value up to $174,999); South Australia (up to $100,000); Tasmania (up to $15,000); and Western Australia (up to $100,000). The previous NSW tax free threshold of $317,000 was quite high compared to current states with a tax free threshold. NSW, Queensland and the ACT have no tax free threshold –although Queensland does have a statutory rebate of $220,000. The annual land tax bill for the average Sydney suburban investment unit, with a strata title land value of $101,000, for each of the jurisdictions would be as follows:
    • NSW - $404.00;
    • Victoria – Nil;
    • Tasmania – $505.00;
    • South Australia - $3.00 (from 2005-06 year);
    • Queensland – Nil;
    • Western Australia - $151.50
    • ACT - $835.00
It can be seen from the above that the rate of NSW land tax is roughly in the middle of the spectrum between no tax payable in Victoria, South Australia and Queensland, and a high of $835.00 in the Australian Capital Territory.