The annual land tax payment in Australia doesn’t get much attention from investors. Many fail to realize that timely payment of the sum opens eligibility for a tax deduction.
This tax deduction, however, only applies in the year of the payment. In this article, we explore how to claim your land tax in Australia before it’s too late.
This is the sticking point for many who own homes. It’s quite common for owners to not know about land tax at all and they end up paying it when prompted at the point of eventual transfer/sale.
How Land Tax Works
The land tax applies only to properties that do not fall under the category of principal residence. This includes:
- Lots in building unit plans
- Vacant land
- Lots in group title plans
- Investment properties
- Lots in a timeshare scheme
- Lots owned by a home unit company
Land tax needs to be calculated based on the site value, land use, and ownership of June 30th every year.
According to the ATO ID 2010/192 (withdrawn, but the law is still in application), land tax only applies to the year in which it relates to and not the year of the payment. To reiterate, section 8-1 of the ITAA 1997 states that a loss or outgoing incurred in gaining or production of a taxable income becomes deductible only in the fiscal year the loss gets incurred.
What Happens When You Leave It to Pay at Time of Sale
What happens if the individual fails to pay the tax in the year it is incurred? At the point of sale, you will be required to pay the land tax incurred from the previous tax years. However, in this case, you will not be eligible to claim the tax deduction from land tax. So don’t leave it too late!
If the property is sold you may still be required to pay the accumulated land tax debt. While this becomes a matter between the buyer and seller, often land tax debt needs to be settled via settlement funds.
How to Claim Your Land Tax in Australia
The best option for you would be to pay the required land tax within the year it gets incurred. In this event, you will then be eligible to apply for a tax deduction of the land tax against your other assessable income.
Similarly, awareness about CGT & GST can also save you a lot of money from a tactical point. If you want find out about CGT and GST taxes when selling a house see here.
