Land tax hikes to hit tenants

Commercial lessors in NSW are reeling in the wake of the State Government’s decision to double property transfer fees from $92 to $184 and increase land tax by 25 per cent on properties valued at more than $2.25 million.

“This is a missed opportunity by the Rees Government to reinvigorate the stalling NSW economy,” said REINSW President Steve Martin. “The real estate sector, already the highest taxed in Australia, is set to become even higher with the doubling of property transfer tax and the increases announced in land tax.”

While the Government’s move has left many commercial agents scratching their heads, Jason Maxwell from Raine & Horne Commercial Newcastle suggests those lessors negotiating new leases should include land tax increases in the lease terms. “This way the lessees pay the increase,” Mr Maxwell said.

Tax expert Peter Bembrick from HLB Mann Judd agrees and added, “Something that should not be overlooked is that, in many commercial tenancy agreements, outgoings such as land tax, council rates, water rates and insurance are on-charged to the lessees”.

“Therefore, the main impact of increasing the land tax charged to large property owners is not on the landlords themselves, but their lessees, many of whom will be small businesses who are already struggling in the current financial climate.”

However Mr Bembrick said while recovering outgoings such as the land tax increase made sense, it is not much help if the tenants are already behind on their rent. “Alternatively, if the lessor is having difficulty attracting lessees the increased charge for outgoings will only make matters worse,” warned Mr Bembrick.

Angus Raine, CEO, Raine & Horne, said increased property taxes were hurting the commercial property sector in Australia. “However I would advise lessors to take a practical approach about how they manage increases in taxes and other outgoings. Times are tough economically and, where possible, finding common ground with valuable tenants will help ensure strong occupancy rates for a commercial property.”

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