Land tax is one of the most consequential ongoing costs for property investors in Australia — yet it's often underestimated because it's calculated on unimproved land value, not the price you paid for the property.
Unimproved value ≠ purchase price. The unimproved value is what the land would be worth if no buildings or improvements existed on it. State Valuer-General offices set these valuations annually, and they can differ substantially from what you paid. In inner Sydney, unimproved land value often represents 60–80% of total property value. In regional areas with older buildings, it may be 20–30%.
Aggregation is the hidden multiplier. If you own two investment properties in Victoria each with a land value of $400,000, your combined taxable value is $800,000 — putting you into the $600k–$1m bracket at 0.5%, not the $300k–$600k bracket at 0.2%. Land tax is calculated on your total holdings, not each property separately. This means your effective land tax rate increases with every additional property you buy in the same state.
State shopping is real.The difference in land tax between states is significant enough that investors with large portfolios actively consider it when choosing where to buy. The Northern Territory has no land tax at all. NSW has a high threshold ($1,075,000) that shelters most investors with a single property. Victoria's low $300,000 threshold catches most investment properties in Melbourne within 15km of the CBD.
Land tax is a deductible expense. As a cost of earning rental income, land tax is fully deductible on your tax return. At a 39% marginal rate, every $3,000 in land tax reduces your tax bill by $1,170 — effectively costing you $1,830 after the deduction. This makes land tax less painful than it looks, but it is still a real cash cost that must be serviced regardless of whether your property is tenanted.