NSW Property Tax Changes: What Sellers Need to Know

Land tax in NSW is an annual state tax administered by Revenue NSW under the Land Tax Management Act 1956 (NSW). It is charged on the total taxable value of all land you own in NSW (excluding your principal place of residence) above the tax-free threshold.

Key land tax rules for sellers:

The Tax-Free Threshold (2024): The land tax-free threshold changes annually. In 2024, the threshold is $1,075,000 (after the principal place of residence exemption). Land with taxable value above this threshold is taxed at 1.6% of the excess, plus a fixed fee of $100.

Premium Rate for High-Value Land: Land with taxable value exceeding $6,571,000 (2024 threshold) is taxed at a premium rate of 2% of the total value, rather than 1.6%.

Impact on Sellers: If you own one or more investment properties in NSW, you will receive a land tax assessment from Revenue NSW each January based on land values at midnight 31 December the previous year. When you sell an investment property, the land tax liability for that property ceases from the date of settlement.

However, any outstanding land tax debts on the property are cleared from settlement proceeds — your conveyancer obtains a land tax clearance certificate from Revenue NSW before settlement to confirm the debt status.

Principal Place of Residence Exemption: Your primary home is completely exempt from land tax. This is the most significant land tax concession available to individual property owners in NSW.

While stamp duty is technically a cost borne by buyers rather than sellers, changes to the NSW stamp duty framework directly affect the pool of buyers for your property and, consequently, the demand for it.

In 2023, the NSW Government introduced the First Home Buyer Choice scheme, later refined into the First Home Buyer Choice program. This scheme allows eligible first home buyers purchasing properties below a purchase price threshold ($800,000 for houses, $500,000 for land) to choose between:

Impact on Sellers: For sellers of entry-level properties (typically outer-ring houses and apartments below $800,000), this scheme expanded the qualifying buyer pool by removing the large upfront cash requirement. A first home buyer who previously needed to save an additional $28,000 in stamp duty on top of a 20% deposit now has those funds available for their deposit instead.

For premium property sellers (above the threshold), the scheme has less direct impact, though the general stimulation of first-home buyer activity at entry levels has a positive flow-on effect throughout the upgrade market.

Land tax in NSW is calculated based on land values set annually by the NSW Valuer General. These are the same values used to calculate council rates. The Valuer General assesses land values based on the "unimproved capital value" of each parcel — that is, the value of the land itself, excluding any buildings or improvements.

Key points for sellers:

Objecting to Land Value Assessments: If you believe the Valuer General has overvalued your land, you can lodge a formal objection. A successful objection can reduce your land tax liability retrospectively. Objections must be lodged within 60 days of the date the land value notice is issued.

Interaction with Capital Gains Tax: For investment property sellers, the cost base for CGT purposes includes the purchase price, stamp duty paid on acquisition, legal fees, and capital improvements. Land tax paid during ownership does NOT increase the cost base — it is a deductible expense for income tax purposes in the year it is paid, but does not reduce the capital gain on sale.

Foreign Persons Surcharge: Foreign persons (non-Australian citizens or permanent residents) who own residential land in NSW pay an additional land tax surcharge of 4% of the taxable land value per year (increased from 2% in the 2023 NSW Budget). This significantly increases holding costs for foreign property owners and may motivate earlier exit strategies.

Private off-market sales interact with NSW property tax in the same way as publicly-listed sales. The key tax obligations are:

Capital Gains Tax (Federal): CGT is payable on any capital gain on investment properties. The CGT exemption for main residences applies regardless of whether the sale is public or private. The date the contract is signed (not the settlement date) is generally the CGT event date.

Land Tax Clearance Certificate: Your conveyancer must obtain a land tax clearance certificate from Revenue NSW before settlement, confirming that all land tax debts on the property have been paid. Any outstanding land tax is cleared from settlement proceeds.

GST Withholding (New Dwellings): If the property is a new residential dwelling or is substantially renovated, GST withholding applies. The buyer must withhold 1/11th of the purchase price and pay it directly to the ATO. This is managed through the settlement process regardless of whether an agent is involved.

Vendor Declaration: Sellers of Australian property must sign a Vendor Declaration confirming that they are an Australian resident for tax purposes. Foreign residents are subject to a 12.5% CGT withholding on the purchase price for properties valued above $750,000.

Under the Income Tax Assessment Act 1997, Capital Gains Tax applies to the sale of residential property in Australia unless the main residence exemption is claimed. If the property was used as an investment, CGT is calculated based on the difference between the sale price and the property's cost base.

The cost base includes the original purchase price, stamp duty, legal fees, and capital renovation costs. Sourcing a tax accountant early ensures you calculate this cost base correctly.

Direct off-market transactions allow you to plan exchange and settlement dates to align with your personal tax brackets, minimizing tax.