Do the changes apply to me?
Land tax does not apply to land used as your home and is only payable when the total taxable value of an owner’s investment or commercial property landholdings exceeds the relevant tax-free threshold.
There are no changes in land tax rates for resident individuals or companies and trustees that have landholdings with a total taxable value of $5,000,000 or less.
Changes to treatment of absentees
From 1 July 2019, the absentee surcharge, which applies to foreign individuals who own land and do not ordinarily reside in Australia, increased from 1.5% to 2%.
The good news is that Australian citizens and Australian permanent residents that are living, working or travelling overseas for an extended period will no longer be treated as absentees. This means that those individuals will benefit from a higher tax-free threshold and lower land tax rates.
Increased land tax rates
Land tax rates will be increased for companies and trustees who own land above $5 million. These changes are summarised below:
New foreign surcharge
Perhaps the biggest land tax change to be implemented from 1 July 2019 is the introduction of a land tax surcharge for foreign companies and trustees of foreign trusts.
In addition to the land tax rate that currently applies to companies and trustees generally, a 2% foreign surcharge applies to the portion of the taxable land that is equal to or greater than $350,000.
An Australian company or trust also qualifies for this surcharge if more than 50% of the shares or units are held by foreign persons.
This means that foreign companies and trustees of foreign trusts that own land with a taxable value of more than $5 million are subject to the increased land tax rate set out above, as well as the 2% foreign surcharge.
What this means for you
Whilst it is important to be aware whether your property is affected by these changes, it is also worth noting that if you lease a property from an affected landlord, you may see these tax increases passed on to you.
To avoid disputes, review your leases and agreements for clarity as to who is responsible for bearing the surcharge costs.
There are strategies and options available to structure acquisitions and restructure landholdings to limit or avoid land tax in certain circumstances. If you would like to explore your options in this regard, or if you have any questions or require assistance with your ongoing legal requirements, please get in touch with our Property Team.