Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
What Is Land Tax?
Land tax is an annual state tax levied by Revenue NSW on the combined unimproved land value of all your investment properties in New South Wales. It is assessed as at 31 December each year, based on the land valuations issued by the Valuer General. If you own one or more taxable properties and the combined land value exceeds the threshold, you receive a land tax assessment in the first quarter of the following year.
Land tax applies to the land itself, not the building or improvements on it. This means a house on a large block in the Eastern Suburbs can attract a much higher land tax bill than an apartment in the same area, even if the apartment is worth more overall. Understanding this distinction is critical for portfolio planning.
2026 Thresholds and Rates
For the 2026 land tax year (based on land values as at 31 December 2025), the key thresholds and rates are:
- General threshold: approximately $1,075,000. If your combined taxable land value is below this amount, you pay no land tax.
- General rate: $100 plus 1.6% of the land value above the threshold.
- Premium threshold: approximately $6,680,000. Land value above this amount is taxed at 2% instead of 1.6%.
These thresholds are indexed annually by Revenue NSW. They tend to increase each year in line with property market movements. Always check the current year's thresholds on the Revenue NSW website before making purchasing decisions.
How Land Tax Is Calculated
Land tax is calculated on the combined unimproved land value of all your taxable properties in NSW. Here is a worked example.
Worked example
An investor owns two investment properties in Sydney:
- Property 1 (Marrickville apartment): land value $400,000
- Property 2 (Parramatta townhouse): land value $1,100,000
- Combined land value: $1,500,000
The calculation:
- Taxable amount above threshold: $1,500,000 - $1,075,000 = $425,000
- Tax: $100 + 1.6% x $425,000 = $100 + $6,800 = $6,900 per year
That $6,900 is payable in addition to council rates, water rates, strata levies, insurance, and property management fees. It is a real cost that must be included in your investment cashflow analysis.
What Is Exempt from Land Tax
Not all land is subject to land tax. The main exemptions include:
- Principal place of residence (PPOR): your main home is exempt, provided you use it as your primary residence.
- Primary production land: farming and agricultural land used for primary production.
- Boarding houses: land used for registered boarding houses (subject to conditions).
- Retirement villages: land used for approved retirement villages.
- Childcare centres: land used for licensed childcare facilities.
Investment properties, vacant land, holiday homes, and commercial properties are NOT exempt. If you own any combination of these, the land values are aggregated for assessment purposes.
The Foreign Owner Surcharge
If you are a foreign person (not an Australian citizen or permanent resident), you pay an additional 4% land tax surcharge on the taxable value of your residential land in NSW. This surcharge applies from the first dollar of land value, with no threshold.
For a property with a land value of $1,000,000, the foreign surcharge alone would be $40,000 per year, on top of any general land tax payable. This can add tens of thousands of dollars per year to the cost of holding NSW investment property as a foreign owner.
Some trusts are also treated as foreign persons for surcharge purposes unless they meet specific requirements. If you hold investment property through a trust, check with your accountant whether the surcharge applies to your structure.
How Land Tax Affects Your Investment Returns
Land tax is an ongoing holding cost that directly reduces your net rental yield. Using the worked example above, $6,900 per year in land tax on a portfolio generating $78,000 in gross annual rent (4% yield on $1.95M in property) reduces the net yield by approximately 0.35 percentage points.
On higher land value portfolios, the impact is more significant. A single investment house in the Eastern Suburbs with a land value of $2,000,000 would generate a land tax bill of approximately $14,900 per year ($100 + 1.6% x $925,000). That is a meaningful reduction in net cashflow, particularly for negatively geared properties.
Land tax catches many Sydney investors off guard. A single investment house in the Eastern Suburbs can have a land value over $2M, generating an annual land tax bill north of $15,000. I factor land tax into every investment scenario I model for clients. It is a real cost that affects your net return and your serviceability for future borrowing.
Strategies to Manage Land Tax
1. Spread ownership across individuals
Each individual taxpayer has their own land tax threshold. If you and your partner each own investment properties in your own names (rather than jointly), each of you gets a separate threshold. This can reduce the total land tax payable. However, be aware that stamp duty and CGT implications must also be considered when structuring ownership.
2. Be cautious with trusts
Discretionary (family) trusts that hold NSW residential property may attract a land tax surcharge of up to 2% in addition to the general land tax rates. Fixed trusts and unit trusts have different treatment. The trust surcharge is separate from the foreign owner surcharge. Get specific advice from your accountant before purchasing investment property through a trust.
3. Consider properties with lower land-to-value ratios
Apartments and units typically have much lower land values relative to their total property value compared to houses. An apartment worth $800,000 might have a land value of $200,000, while a house worth $800,000 could have a land value of $600,000. Choosing apartments over houses can significantly reduce your land tax exposure.
4. Diversify across states
Each state has its own land tax regime with different thresholds and rates. Queensland, Victoria, and other states calculate land tax independently of NSW. Holding properties across multiple states means each portfolio is assessed separately, potentially keeping you below thresholds in each state.
5. Monitor your land valuations
The Valuer General issues land valuations annually. If you believe your land value is too high, you can object within 60 days of receiving your valuation notice. A successful objection can reduce your land tax bill for the current and future years.
Land Tax and Your Borrowing Power
Lenders factor in land tax as an existing liability when assessing your serviceability for additional investment property loans. A land tax bill of $5,000 to $15,000 per year reduces the surplus income available for new loan repayments. This can lower the maximum amount a lender will approve for your next purchase.
When I model investment scenarios for clients, I always include the projected land tax liability in the cashflow analysis. This ensures we present an accurate picture to the lender and avoid surprises after settlement. If you are building an investment portfolio, understanding the cumulative land tax impact across your entire portfolio is essential before committing to additional purchases.
