NSW land tax is one of the most consequential and least understood costs in property investment. Unlike income tax, it is not assessed on your profit. It is assessed on what you own, every single year, regardless of whether the property generates positive cash flow. And unlike stamp duty, land tax keeps arriving in your letterbox for as long as you hold the asset.

For NSW property investors, the structure you use to hold your properties directly determines whether you pay land tax from the first dollar of land value or whether you are protected by a meaningful tax-free threshold. Getting this wrong can cost thousands of dollars every year, compounding indefinitely over a long hold period.

This article explains how NSW land tax works, how each common holding structure is treated, and what planning options are available in the 2025-26 financial year.

How NSW Land Tax Works

NSW land tax is an annual state tax levied on the combined unimproved land value of all taxable property you own in New South Wales, as assessed on 31 December each year. The tax is calculated on the land component only, excluding any buildings or improvements. Revenue NSW uses a three-year average of the Valuer General's annual land valuations to smooth out year-to-year fluctuations.

Your principal place of residence is generally exempt, provided you own at least a 25% interest and meet the eligibility requirements. Investment properties, holiday homes, and vacant land are all taxable.

The threshold is applied to your total NSW landholding, not to each property individually. If you own three investment properties and the combined unimproved land value exceeds the threshold, you pay land tax on the excess across the whole portfolio.

2025-26 Thresholds and Rates

For the 2025 land tax year (based on landholding as at 31 December 2024), the thresholds are frozen at the following levels following the 2024-25 State Budget announcement:

  • General threshold: $1,075,000
  • Premium threshold: $6,571,000

Once the combined unimproved land value exceeds the general threshold, the rate is $100 plus 1.6% of the land value above $1,075,000. For landholdings above the premium threshold, the rate becomes $88,036 plus 2% of the value above $6,571,000.

Importantly, these thresholds have been frozen indefinitely following legislation passed in 2024. Historically, the threshold increased each year in line with property values. From 1 January 2025, it is fixed, which means that as NSW property values continue to rise, more investors will be pulled into the land tax net each year without any corresponding adjustment in the threshold.

The Treasurer is required to review the thresholds by 1 June 2027, but no automatic indexation applies in the interim.

How Your Structure Affects the Threshold

This is where the significant differences emerge. Not all holding structures are treated equally under NSW land tax legislation, and the disparity between a family trust and every other common structure is stark.

Individual Ownership

An individual landowner receives the full general threshold of $1,075,000. If your combined NSW investment property land values fall below this figure, no land tax is payable. Above the threshold, the standard rates apply.

There is one important nuance: joint owners are assessed together on the property they co-own, and separately on any properties they hold individually. You cannot claim two thresholds simply because two people are on the title together.

Company

A company that holds NSW investment property in its own right receives the standard threshold of $1,075,000. The same general and premium rates apply. This is one of the structural advantages of a corporate ownership structure for NSW property, particularly where a trust structure is also involved (see below).

Note that related companies may be grouped by Revenue NSW and assessed as a single entity, so the grouping rules should always be considered when multiple related companies hold property.

SMSF (Self-Managed Super Fund)

A complying superannuation fund, including a self-managed super fund, also receives the standard land tax threshold of $1,075,000. This is one of the less commonly discussed advantages of holding direct property inside an SMSF in NSW. The fund is assessed in the same way as an individual or company, and the $1,075,000 threshold applies to the SMSF's combined NSW landholdings.

For more on the broader structuring question of when an SMSF makes sense for property investment, see the investment property structure guide.

Family Trust (Discretionary Trust) - The Special Trust Trap

This is the critical issue for NSW investors.

A discretionary family trust is classified as a special trust under section 3A of the Land Tax Management Act 1956. A special trust does not receive the land tax threshold. Land tax applies from the first dollar of unimproved land value, at a flat rate of 1.6% on the total land value, rising to 2% above $6,571,000.

The practical impact of this is significant. Consider a property with an unimproved land value of $800,000 - below the individual threshold, so no land tax if held personally. Held inside a discretionary family trust, that same property generates a land tax bill of $12,800 per year (1.6% of $800,000). Every year. For as long as you hold it.

Over a ten-year hold, that is $128,000 in land tax that would not exist had the property been held in a different structure. Add compound growth in land values and the number grows substantially over time.

This classification applies to:

  • Discretionary (family) trusts
  • Most unit trusts that do not meet the fixed trust criteria
  • Trusts created by a will (after a two-year transitional period)

Many investors set up family trusts for their investment properties without fully understanding the NSW land tax consequence. The income tax benefits of a discretionary trust can look compelling in isolation, but when the ongoing annual land tax liability is modelled into the numbers, the picture changes considerably.

For a detailed look at how family trust income splitting works and the ATO's current compliance focus, see the family trust income splitting guide.

Fixed Trusts and Unit Trusts

Not all trusts are treated as special trusts. A fixed trust, including certain unit trusts and bare trusts, can access the general threshold if it meets strict criteria under section 3A of the Land Tax Management Act. All beneficiaries must have a fixed entitlement to income and capital, and the trust deed must contain prescribed wording. A standard discretionary deed cannot be converted by resolution alone. The deed must be formally amended, and the threshold will only apply from the following land tax year.

Strategies for NSW Property Holders

Understanding the structural landscape opens up a number of planning options, depending on where you are in your property journey.

Before You Buy: Choose the Right Structure from the Start

The most cost-effective time to address NSW land tax is before you settle on a property. Once a property is in a special trust, extracting it involves transfer duty and potentially CGT, both of which can easily exceed any land tax saving you were trying to achieve. If income splitting or asset protection are priorities, consider whether a company, an SMSF, or a carefully drafted fixed unit trust might achieve your goals without triggering the special trust treatment.

Review the Land Tax Cost When Assessing Existing Trusts

If you already hold NSW property inside a discretionary trust, quantify the annual land tax liability against what it would be in an alternative structure. Where land values are growing, the cumulative cost is often material enough to justify a restructure despite the upfront transaction costs. Any modelling should include both the transfer duty and CGT consequences, alongside the income splitting benefits the trust currently provides.

Land Tax Is Deductible Against Rental Income

Land tax on an investment property is fully deductible as a rental expense. This does not eliminate the cost, but it reduces the after-tax impact depending on the marginal rate of the taxpayer. For a trust distributing income to lower-rate beneficiaries, the deduction is worth less than it would be for a high-income individual owner, further compounding the disadvantage of the special trust treatment.

Portfolio Aggregation and Threshold Management

Because the threshold applies to your total NSW landholding, not each property individually, holding properties across different ownership entities can sometimes allow each entity to access its own threshold. However, the grouping and related entity rules are complex and need professional review specific to your circumstances.

Frequently Asked Questions

Does a family trust get the NSW land tax threshold?

No. A discretionary family trust is classified as a special trust under the Land Tax Management Act 1956, and special trusts do not receive the $1,075,000 threshold. Land tax applies from the first dollar of unimproved land value at 1.6%, rising to 2% above the premium threshold of $6,571,000.

Does a company get the NSW land tax threshold?

Yes, in most cases. A company holding NSW investment property in its own right receives the $1,075,000 threshold and pays $100 plus 1.6% on the excess above it. Related companies may be grouped and assessed together, so always check the grouping rules with your adviser.

Can I restructure out of a family trust to avoid NSW land tax?

Yes, but the process involves transfer duty on any property moved out of the trust, and potentially capital gains tax. Converting a discretionary deed to meet the fixed trust criteria under section 3A of the Land Tax Management Act 1956 can allow the trust to access the threshold from the following year, but the deed must satisfy specific Revenue NSW requirements. Any restructure should be modelled against the ongoing land tax saving before proceeding.

The Bottom Line

NSW land tax is a permanent, annual cost that compounds over time. For investors who hold or are considering NSW property, the structure question is not merely administrative. It determines whether you pay land tax from dollar one or whether you are protected by a $1,075,000 threshold, and with thresholds now frozen, that distinction will become more valuable each year as land values rise.

The family trust trap catches many investors who make the structure decision based on income tax benefits alone, without modelling the land tax consequence across the full hold period. In NSW, that analysis is non-negotiable.

If you would like a review of your current or planned property structure, including a modelled comparison of land tax liability across different ownership options, a Strategy Session is the right starting point.

Apply for a Strategy Session

Andrew Romano is a Chartered Accountant and SMSF Specialist based in Sydney. He works with high-income individuals, business owners and investors on tax planning, structuring and self-managed super funds.

Sources and references:

Download the Free Tax Saving Checklist

The same checklist I give my high-income clients. Covers super contributions, trust distributions, CGT timing, deductions, and more.

Get the Free Checklist