We’ve written before about the different searches a solicitor will undertake as part of the conveyancing process when you purchase a property. One of these searches that must be undertaken as part of the process is a land tax clearance search. If you are taking out a mortgage to finance your purchase your mortgagee will require this prior to settlement, but in most cases your solicitor will undertake this search even if you are not taking out a mortgage in order to avoid you taking on a land tax liability.
What is Land Tax?
Land tax is a state tax that is calculated on the total value of freehold land owned by a person in Queensland at midnight on June 30 earch year. The tax rate that applies depends on how the property is owned and on the total taxable value of all land owned by a person.
Most people are not liable to the payment of land tax as the value of their land is not high enough and does not meet the threshold for payment. If you do become liable the Queensland Government will issue you a suammary of your land holdings and a assessment notice for payment of land tax.
The following types of land will go towards the calculation of the value of your freehold land:
- vacant land
- land that is built on
- lots in building unit plans
- lots in group title plans
- lots in a timeshare scheme
- lots owned by a home unit company.
You will become liable for the payment of land tax when the total taxable value of your land is $350,000 or more for a company, or $600,000 for an individual. This is not the value of the property, but rather the value of just the land itself.
The Importance of a Land Tax Clearance Search:
A land tax clearance search is undertaken to check if there is any land tax owing on the land you are buying in Queensland, as if there is land tax owing and you settle the property without having this paid, you may be required to pay the amount outstanding.
Unpaid land tax is a charge over the land and may or may not be registered on the title. What this means is that it will take priority over any mortgage, which is why your mortgagee will require this search. As land tax is a charge it will continue as a charge even if ownership of the land is transferred, which is why you will become liable for its payment, even though you did not incur the tax.
In order to protect you from incurring this liability your solicitor will undertake the land tax clearance search, which will return one of the following results:
- a clearance certificate, confirming the land is clear of land tax on the anticipated date of possession
- a liability advice, stating the amount of current land tax payable for the specified land
- a garnishee notice, for the recovery of overdue land tax
- both a liability advice for current land tax and a garnishee notice for outstanding land tax.
Based on the result received from the search your solicitor will organise for the payment of any outstanding tax prior to the settlement of the property by the seller, who has incurred the tax liability. This can be paid out of the settlement funds they are to receive as part of the sale of the property.
Land tax is raised based on the value of land owned by a person on 30 June each year. Once payment has been made a land tax clearance certificate will be issued by the State Government, stating that there is no land tax payable up to the next 30 June.
Obtaining a land tax clearance certificate prior to settlement of the property is vital as any unpaid land tax will pass onto you as the new owner of the property, even if your total taxable land value does not meet the thresholds described above.