A land tax assessment from your state or territory revenue office does not include GST. Under Division 81 of the A New Tax System (Goods and Services Tax) Act 1999, all Australian taxes are treated as GST-exempt, so the figure printed on your notice is the full amount you owe with nothing added for federal consumption tax.1Australian Taxation Office. Payments to Government Agencies Under Division 81 GST on land tax only becomes a live question once the cost moves into a commercial transaction: a settlement adjustment between a buyer and seller, or an outgoings recovery from a commercial tenant. In those settings, the payment stops being a tax and starts being part of the price of a property or lease, and GST can apply.
Why the Bill From the Revenue Office Has No GST
Division 81 makes Australian taxes GST-exempt by default. Regulations could in principle bring particular taxes into the GST net, but none has ever been made, so land tax remains outside GST when paid directly to a government agency.1Australian Taxation Office. Payments to Government Agencies Under Division 81 The revenue office is not supplying you with goods or services when it assesses land tax; it is exercising a statutory power to tax land ownership. Because there is no GST on the assessment, there is also nothing to claim back through the GST system. That is true whether you own the land personally, through a company or trust, use it for private or business purposes, or are registered for GST.
GST on Land Tax Adjustments at Settlement
When a property changes hands mid-year, the seller has usually already paid land tax for the full assessment year, and the settlement statement reimburses the seller for the portion of the year the buyer will own the property. The ATO treats these adjustments as part of the price paid for the property, not as a separate tax payment. GST Determination GSTD 2006/3 confirms that settlement adjustments for rates, taxes, and other outgoings are taken into account in working out the consideration for the supply of real property.2Australian Taxation Office. GSTD 2006/3
Whether GST actually applies to the adjustment depends entirely on whether the sale itself is a taxable supply.
Taxable Sales
New residential premises and commercial real estate sold by a GST-registered seller are the common taxable supplies. Here, the land tax adjustment is folded into the total consideration and GST applies to the whole amount.3Australian Taxation Office. GST and Property If a commercial building sells for $1,000,000 and the settlement statement includes a $3,000 land tax adjustment in favour of the seller, GST is calculated on $1,003,000.
Input-Taxed and GST-Free Sales
Sales of existing residential premises are input-taxed. No GST applies to the sale, and no GST applies to the land tax adjustment either. Sales that qualify as GST-free, such as a going concern or eligible farmland, work the same way: the adjustment takes the GST status of the underlying supply. Because most Australian property transactions are sales of existing homes, in practice most buyers’ land tax reimbursements at settlement do not attract GST.
GST on Land Tax Recovered From Commercial Tenants
Commercial leases routinely require tenants to reimburse the landlord for outgoings, and land tax is often one of the largest items. Once the landlord recovers land tax from a tenant, that payment is no longer a tax paid to government. It becomes part of what the tenant pays for the right to occupy the premises. GST Determination GSTD 2000/10 states that Division 81 does not apply to a tenant’s reimbursement of land tax, because the tenant is not paying a tax to a government agency; the tenant is paying consideration for a supply of premises.4Australian Taxation Office. GSTD 2000/10
A GST-registered landlord must therefore charge GST on the land tax component of outgoings invoiced to a commercial tenant. If the land tax apportioned to a tenancy is $5,000, the landlord invoices $5,500 including 10% GST. All outgoings reimbursed by tenants count towards the landlord’s GST turnover, whether the tenant pays the third party directly or reimburses the landlord.4Australian Taxation Office. GSTD 2000/10
If you are the tenant, and you are GST-registered and use the premises for business, the GST charged on the outgoings is claimable as an input tax credit through your business activity statement.5Australian Taxation Office. Leasing and Renting Commercial Premises Residential tenants are not affected. Residential rent is input-taxed, so landlords do not charge GST on residential rent or outgoings.
Why You Cannot Claim GST Back on the Land Tax You Pay Directly
A common misconception among property owners is that a business or GST-registered entity should be able to claim GST back on its land tax bill. There is nothing to claim. The assessment is GST-exempt, not GST-inclusive, so no input tax credit arises no matter what the land is used for.
Landlords sometimes find the asymmetry counter-intuitive: GST is charged when recovering land tax from a tenant, but no credit is available on the original bill from the revenue office. That is the system working as intended. The payment to the state revenue office is a GST-exempt transaction. The recovery from the tenant is a taxable supply, on which the landlord charges and remits GST, and the tenant claims the credit. GST only enters the chain when the cost moves into a commercial supply.