Changes to NSW land taxes to impact renters, industry says
There are changes coming to how land taxes are used in NSW as a senior industry figure says it could impact renters.
More landlords and investors could face higher costs under a government plan described by a senior real estate figure as a “tax grab by stealth”, which could exacerbate the strain on an already tight property market.
The NSW government is set to announce the threshold at which its land taxes are triggered will be frozen at $1.075m, meaning more properties will be captured in coming years.
Previously the tax-free threshold moved in line with property prices, with the changes forecast to raise an extra $1.5b for the state budget over the next four years.
Treasurer Daniel Mookhey told the Australian Financial Review the measure brought NSW into step with most other states and would be reviewed as time progresses.
“South Australia is the only other state to index land tax thresholds,” he said in a statement.
“The NSW tax-free threshold will remain around 50 per cent higher than the next nearest state.”
But Tim McKibbin, chief executive of Real Estate Institute of NSW, said removing indexation would have “severe ramifications” for commercial tenancies in particular.
“Given the high cost of holding a residential property, adding to the tax burden will only place additional pressure on investment returns, leaving landlords two undesirable options,” he said.
“They can either pass the extra cost onto tenants or sell their investment property, taking more homes out of an undersupplied rental market.
“This move will have the same effect as not indexing the stamp duty brackets. It is a tax grab by stealth and at a time when we desperately need to encourage investment in residential property, increasing tax will have the complete opposite effect.”
Mr McKibbin also said increased tax burdens on foreign investors were “immaterial” given they make up just 0.06 per cent of NSW’s homeowners.
In NSW land’s worth is judged by the Valuer General, which determines a price for the lot itself – not any structures located on it.
Its general threshold stipulates a $100 fee plus 1.6 per cent of the value above the threshold to be paid as an annual fee.
Only 163,000 people were issued with land tax notices in the state last year, and owner occupiers generally are not affected.
Under guidelines people may be issued with a tax bill if the aggregated value of multiple properties is above the threshold.
With prices for homes and land rising in NSW, it means the threshold freeze could see more investors and landlords with multiple homes slugged with bills.
Victoria this year slashed its tax-free threshold from $300,000 to $50,000 under its Covid debt repayment plan.
However, land taxes don’t generally apply to primary residences, primary farms and charitable institutions.
Investment properties, businesses, holiday homes and vacant land are all captured by the changes in Victoria, slated to bring in another $4.74b in taxes.
Landlords in the state have been slugged with a series of policy changes in 2024, including new minimum standards for rental properties.
And last week City of Merri-bek councillors voted to explore doubling rates for people who owned two or more properties in the area as part of a plan to address the housing crisis.
Council staff have already advised it was “very unlikely” the plan would be feasible.
Affordable units for emergency workers
NSW’s budget will also include $450m to build more than 400 build-to-rent dwellings over the next three years.
These homes will be offered to emergency service personnel at a discounted rental price through a government subsidy.
Premier Chris Minns said on Sunday he was expecting “big towers” that would be reserved exclusively for essential workers like nurses, paramedics, firefighters and police.
“We can offer competitive rates because the government will own the land. It will be the builder of the project,” he said.
The government says construction of the first site would begin in 2026.