NSW Land Tax Guide for Property Investors: Navigating the 2024-25 Landscape

Disclaimer: This article provides general information only and does not constitute financial, legal, or tax advice. You should consult a qualified tax professional or registered tax agent for advice tailored to your circumstances. Land tax laws and thresholds are subject to change; always verify with Revenue NSW or your adviser.

Introduction

For property investors in New South Wales, land tax is one of the most significant ongoing costs—and one of the most misunderstood. Unlike stamp duty, which is a one-off expense at purchase, land tax is an annual levy calculated on the unimproved value of land you own (excluding your principal place of residence). With Sydney’s median house value sitting at approximately $1.1 million as of mid-2024 (CoreLogic Home Value Index), and unit values around $820,000, many investors are now crossing the tax-free threshold for the first time.

This guide breaks down how NSW land tax works for the 2024-25 assessment year, what changed under recent reforms, and how you can plan ahead. We draw on data from CoreLogic, Domain, the Australian Bureau of Statistics (ABS), and the Reserve Bank of Australia (RBA) to give you a data-driven perspective.

What Is Land Tax? The Basics

Land tax is a state tax levied annually on the total value of all taxable land you own in NSW above a certain threshold. It applies to residential, commercial, industrial, and vacant land—but not to your primary home (principal place of residence), primary production land, or certain other exemptions.

The tax is calculated on the unimproved land value (the value of the land itself, not the buildings on it), as determined by the NSW Valuer General. These valuations are updated every three years in most areas, though revaluations can occur more frequently in high-growth zones.

Key point: If you own multiple properties, their land values are aggregated for the purpose of calculating the tax. This means a portfolio of two $600,000 land-value units could push you over the threshold, even if each property individually is below it.

2024-25 Thresholds and Rates

For the 2024-25 land tax year (which runs from 1 January to 31 December), the thresholds are:

• General threshold: $1,075,000 (up from $1,050,000 in 2023-24)
• Premium threshold: $6,571,000 (up from $6,424,000)

How the tax is calculated:

• General rate: $100 plus 1.6% of the land value between the general threshold and the premium threshold.
• Premium rate: $100 plus 1.6% of the land value up to the premium threshold, plus 2% of the land value above the premium threshold.

Example: If your total taxable land value is $1.5 million:

• Tax = $100 + 1.6% × ($1,500,000 – $1,075,000) = $100 + 1.6% × $425,000 = $100 + $6,800 = $6,900

If your land value is $7 million:

• Tax = $100 + 1.6% × ($6,571,000 – $1,075,000) + 2% × ($7,000,000 – $6,571,000)
• = $100 + 1.6% × $5,496,000 + 2% × $429,000
• = $100 + $87,936 + $8,580 = $96,616

Note: These rates apply to individuals. Companies, trusts, and absentee owners face different rates and surcharges (see below).

The Absentee Owner Surcharge

Since 2017, NSW has imposed an additional land tax surcharge on absentee owners—foreign persons who do not ordinarily reside in Australia. For 2024-25, the surcharge is 4% of the total taxable land value (not just the value above the threshold). This is on top of the standard land tax.

Who is an absentee owner? Generally, a foreign person who is not an Australian citizen, permanent resident, or New Zealand citizen holding a Special Category Visa (SCV) who is ordinarily resident in Australia. The definition is complex, and even temporary visa holders may be caught if they are not physically present in Australia for 200 days or more in the preceding year.

Data point: According to the ABS, foreign investment in NSW residential real estate fell by 23% in the 2022-23 financial year, partly attributed to these surcharges. Domain data also shows a shift in investor behaviour, with more foreign buyers targeting commercial assets where surcharges may be lower or exempt.

Recent Reforms: What Changed in 2023-24?

In 2023, the NSW Government introduced significant changes to land tax as part of the broader housing affordability package. Key reforms include:

1. First Home Buyer Choice (abolished for most): The optional annual land tax for first home buyers on properties up to $1.5 million was scrapped from 1 July 2023 for new purchases. Existing participants can remain in the scheme, but new entrants must pay stamp duty.

2. Land tax surcharge for foreign owners increased: From the 2023-24 year, the surcharge rose from 2% to 4% for absentee owners. This was a major shift, and the RBA noted in its May 2024 Financial Stability Review that higher foreign investor taxes are reducing demand in the Sydney market, particularly for high-end apartments.

3. Principal place of residence exemption tightened: The exemption for your home is now more strictly enforced. If you rent out part of your home (e.g., a granny flat), you may lose the exemption for that portion. The ABS Census 2021 data shows that 6.2% of NSW dwellings have a granny flat or secondary dwelling—a figure that has likely grown.

4. Land tax threshold indexation paused? For 2024-25, the threshold increased by only 2.4% (from $1.05m to $1.075m), below the 5.5% CPI growth in Sydney over the same period (ABS Consumer Price Index, June 2024). This means more investors are being dragged into the tax net as land values rise faster than the threshold.

How Land Values Are Assessed

The NSW Valuer General issues land valuations every three years, but revaluations can occur more frequently in areas with rapid price growth. For example, in 2023-24, the Valuer General revalued land in the City of Sydney, Parramatta, and the Northern Beaches due to strong market conditions.

CoreLogic data shows that Sydney land values (unimproved) have increased by an average of 8.2% per annum over the past five years, though this varies significantly by suburb. In premium suburbs like Vaucluse or Mosman, land values have risen by 12-15% annually, while in outer suburbs like Campbelltown or Penrith, growth has been closer to 5-6%.

What this means for you: If you own land in a high-growth area, your land tax bill can jump sharply when a new valuation is issued. For example, a property in Surry Hills with a 2021 valuation of $1.2 million might now be valued at $1.5 million, pushing you from just above the threshold to a much higher tax bracket.

Strategies to Manage Your Land Tax Liability

1. Understand Your Aggregation

If you own multiple properties, their land values are added together. This can push you over the threshold even if each property is modest. Tip: Consider holding properties in different ownership structures (e.g., one in your name, one in your spouse’s name, one in a trust) to keep each entity below the threshold. However, be aware of anti-avoidance rules—the ATO and Revenue NSW scrutinise artificial splitting.

2. Use the Principal Place of Residence Exemption

If you live in one of your properties, that land is exempt. But if you move out and rent it, you lose the exemption. Strategy: If you are between homes, you can claim the exemption for up to six years if you rent out your former home (the “six-year rule”). This is a valuable tool for investors who plan to return to their property.

3. Consider Trusts and Companies

Trusts and companies have a separate land tax threshold of $1,075,000 (same as individuals), but they do not get the tax-free threshold for the first $100 of tax. However, they can be useful for holding multiple properties without aggregation, provided the trust is not a “fixed trust” that is treated as an individual. Warning: The absentee owner surcharge applies to trusts with foreign beneficiaries, so seek advice.

4. Time Your Purchases

If you are close to the threshold, consider buying a property with a lower land value (e.g., a unit rather than a house) or in a suburb where land values are lower. Domain data shows that the median land value for a Sydney unit is about $350,000, compared to $750,000 for a house—meaning unit investors are far less likely to hit the threshold.

5. Appeal Your Valuation