Can the landlord make me pay land tax?

Land tax is a type of 'outgoing' expense that a lessor may pass on to their lessee who has a lease covered by the Retail Leases Act 1994 (the Act). Outgoings are payments in addition to rent.

A retail lessee and their lessor should negotiate the lessee’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 lessor’s ability to recover land tax from their lessee.

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 lessor 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 ($755,000 for 2021) and have to start paying land tax.

If the lease states that the lessee is liable or partly liable for all statutory charges, they may have to start paying land tax, even if they have not paid land tax before.

Tenant’s payment

When working out how much land tax the lessee must pay, where this has been agreed to in the lease, 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 lessor’s property, each lessee pays their proportion of the land tax. This is the same for properties in shopping centres.

Example

A lessor owns three properties with a total assessed land value of $2,500,000. The assessed land value of the property where the retail lessee is located is $800,000.

The maximum amount of land tax that the lessor may pass on to the lessee is $820. This is how the amount is calculated:

$800,000    (land value of the leased property)

̶ $755,000    (tax-free threshold in 2021)

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$45,000
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Land tax: $100 + (1.6% x $45,000) = $820

Calculation of land tax

The Revenue NSW calculates land tax based on the combined value of all taxable land that a person owns.

Where lessors provide rental relief to eligible lessees from 1 July 2021 – 31 December 2021, they may be eligible for reductions in land tax. More information can be found at Revenue NSW.

For information about land tax, contact Revenue NSW on 1300 139 816 or email Landtax.Lodgements@Revenue.nsw.gov.au.