Understanding state taxes on residential investment properties

Investing in residential property can be rewarding, but it's important to understand the various state charges that apply in New South Wales (NSW).

State taxes, duties and levies are administered by Revenue NSW not the Australian Taxation Office (ATO) or other government agencies.

These costs can impact your investment returns, so factor them into your budget from the start.   

When you buy a property in NSW, including an investment property, you'll need to pay transfer duty on the purchase. Transfer duty was previously called stamp duty.

The amount you pay is based on the property's dutiable value (usually the purchase price or market value, whichever is higher). Different transfer duty rates apply depending on the property value.

Use the Transfer Duty Calculator to estimate how much you will pay.

For detailed information about transfer duty rates and calculations, visit the Revenue NSW transfer duty website. 

If you're a foreign person buying residential property in NSW, you may need to pay an additional surcharge purchaser duty on top of transfer duty.

Surcharge purchaser duty also applies to certain trusts and corporations with foreign persons as beneficiaries or shareholders.

Use the Surcharge Purchaser Duty Tool to assess whether you are considered a foreign person for the purposes of surcharge purchaser duty.

For more information, including a definition of a foreign person, visit the Revenue NSW surcharge purchaser duty page. 

Land tax is an annual tax based on the combined land value of all the non-exempt properties you own in NSW.

Some properties may be exempt, including your home (principal place of residence) and land used for primary production.

You will be liable for land tax if the combined land value of all your non-exempt properties exceeds $1,075,000 (general land tax threshold). It does not matter if you earn income from your land or not.

If a property is held in certain types of trusts or by related companies, the owner may not qualify for the tax-free threshold.

Land tax applies to all land, including investment properties, holiday homes, apartments and vacant land.

Use the Land Tax Calculator to estimate how much you will pay.

For current thresholds and rates, and more information about exemptions, visit the Revenue NSW land tax website.

Foreign persons who own residential land in NSW must pay surcharge land tax unless they qualify for an exemption.

There is no tax-free threshold for surcharge land tax.

The surcharge applies to the same categories of foreign persons as the surcharge purchaser duty, including foreign individuals, corporations, and trusts.

Use the Surcharge Assist Tool to assess your foreign status for surcharge land tax purposes.

Use the Land Tax Calculator to estimate how much you will pay.

Learn more about surcharge land tax, including the definition of a foreign person.

If you are investing in residential or non-residential off-street parking, you may be liable for parking space levy.

This annual levy only applies to key business districts in Sydney.

Learn more about parking space levy, including the exemptions that may apply.

Include transfer duty (and surcharge purchaser duty if applicable) in your purchase budget.

These costs are due before you buy the property or on the day of settlement.

Other costs can include:

• solicitor and conveyancer fees
• buying agent fees, and
• pest and building inspection reports.

When calculating your expected rental yield and cash flow, you may need to factor in annual state taxes and levies if applicable, such as:

• land tax
• surcharge land tax, and
• parking space levy.

Remember to include other ongoing costs that are not state government charges. These can include:

• local council rates
• landlord maintenance costs
• strata fees (if applicable), and
• property and maintenance costs

You should also be aware of other taxes and costs when selling your investment property, such as

• capital gains tax – administered by the ATO, and
• real estate agent fees.

Remember that laws about state taxes, duties and levies can change, and this information is general in nature.

Always check the Revenue NSW website for the most current rates and rules for state taxes, duties and levies.

Consider speaking with a tax professional or financial adviser who can help you understand how these costs apply to your specific financial situation.