Can the landlord make me pay land tax?
Land tax is a type of 'outgoing' expense that a landlord may pass on to their tenant who has a lease covered by the Retail Leases Act 1994 (the Act). Outgoings are payments in addition to rent.
A retail tenant and their landlord should negotiate the tenant’s willingness to pay any part of the land tax, and any other liabilities, before the lease is signed.
The agreed land tax payment and how it is calculated should be detailed in the lease and the lessor’s disclosure statement.
Retail leases are different from other business leases because the Act limits the landlord’s ability to recover land tax from their tenant.
It’s important that you get legal advice if your lease says you are liable for some part of outgoing expenses or statutory charges.
When is land tax payable?
The landlord might not be paying land tax at the time a lease is signed, but as land values rise, the owner may reach the taxable threshold ($549,000 for 2017) and have to start paying land tax.
The tenant will have to start paying the land tax that becomes payable during the term if the lease states that the tenant is liable or partly liable for all statutory charges, even if they have not paid land tax before.
When working out how much land tax the tenant must pay, the calculation is based only on the value of the land where the leased property is located. (Property owners pay land tax on the combined value of all their properties, not a separate payment on each property.)
If there is more than one retail shop on the landlord’s property, each tenant pays their proportion of the land tax. This is the same for properties in shopping centres.
A landlord owns three properties with a total assessed land value of $1,500,000. The assessed land value of the property where the retail tenant is located is $600,000.
The maximum amount of land tax that the landlord may pass on to the tenant is $916. This is how the amount is calculated:
$600,000 (land value of the leased property)
̶ $549,000 (tax-free threshold in 2017)
Land tax: $100 + (1.6% x $51,000) = $916
Calculation of land tax
The Revenue NSW calculates land tax based on the combined value of all taxable land that a person owns.
|Total assessed land value||Tax payable (as at 2017)|
|$0 to $549,000||$0|
|$549,000 to $3,357,000||$100 plus 1.6%|
|More than $3,357,000||2%|
For information about land tax, contact the Revenue NSW on 1300 139 816 or email [email protected]