Is NSW land tax deductible against rental income?

Yes - currently deductible under ITAA 1997 s 8-1 as a cost incurred in producing assessable rental income. Under the proposed 2027 negative gearing restriction, if the property runs at a net loss the deduction is quarantined and carried forward against future property income.

What's the 2024-25 NSW land tax threshold?

$1,075,000 unimproved land value (the council rates UCV figure). Above the threshold, the rate is 1.6 percent on the excess, plus a $100 base fee.

Are foreign owners subject to a land tax surcharge in NSW?

Yes - a 5 percent surcharge on the full unimproved land value held by foreign persons, applied on top of the standard schedule.

Does NSW land tax aggregate across multiple properties?

Yes - land tax is assessed on the taxpayer's total assessable land value in NSW, not per-property. Each additional property pushes the portfolio further up the bracket schedule, so the marginal tax on a new acquisition can be materially higher than its standalone assessment would suggest.

NSW land tax and the 2027 negative-gearing change: how they interact

Australian investment property is taxed at two levels: federal (income tax, CGT, negative gearing) and state (land tax, stamp duty, vacancy taxes). The proposed 2027 negative-gearing restriction sits at the federal layer, but it changes how state land tax flows through your tax position. For NSW investors with an established residential property, the interaction is worth modelling explicitly.

NSW land tax in 30 seconds

Set by NSW Treasury under the Land Tax Act 1956 and updated annually. As at the 2025-26 valuation year:

Threshold: ~$1,075,000 unimproved land value (general).
Rate: $100 + 1.6% of the value above threshold, up to the premium threshold (~$6.57M); 2% above.
Trust surcharge: 0.4% surcharge for trust holders (proposed to be aligned with general from 2027).
Foreign-owner surcharge: 5% of land value.

Land tax is assessed at midnight on 31 December each year, on the aggregate unimproved value of all NSW land held by the owner (excluding principal residence).

How land tax interacts with rental income

Under current law, NSW land tax is deductible against rental income from the property - it's a normal s 8-1 outgoing for an investor running the property as an income-producing asset. That means:

A $5,000 land tax bill reduces taxable rental income (and therefore the property's net result) by $5,000.
If the property is negatively geared (interest + expenses + depreciation > rent), land tax adds to the loss and is offset against the investor's salary at their marginal rate.
At a 39% effective marginal rate (top + Medicare), $5,000 of land tax reduces tax payable elsewhere by $1,950. The real after-tax cost of the land tax bill is $3,050.

What the 2027 reform changes

The proposed federal negative-gearing restriction on established residential property from 1 July 2027 quarantines net property losses - including the land-tax-driven portion - so they can no longer offset salary or non-property income.

For NSW investors specifically, this matters because NSW has among the highest land tax in Australia (higher than VIC for most price bands, lower than QLD's aggregate regime). On a $2M Sydney property with $1.4M unimproved land value:

Position	Current law	Under reform
Annual land tax	~$5,300	~$5,300
Tax saving at 39% (offsets salary)	$2,067	$0
Net after-tax cost of land tax	$3,233	$5,300

The $5,300 nominal land tax bill effectively becomes ~$2,000 more expensive in after-tax terms once the salary offset is gone. Across a 10-year hold, that's ~$20,000 of additional after-tax cost for the same property - on top of the salary offset lost on the property's broader net loss.

Trust holders: a second layer

Property held by a NSW discretionary trust currently attracts an additional 0.4% land tax surcharge on the full unimproved value, no threshold. On a $1.4M land value that's an extra $5,600/year of land tax on top of the general assessment.

Trust losses are already carried forward inside the trust, so the 2027 negative-gearing restriction is largely a no-op for trust holders. But the land tax cost itself doesn't change - and combined with the proposed 2028 trust minimum tax, the trust structure becomes more expensive on both axes.

The decision tree for NSW investors

If you own established residential personally: land tax becomes effectively ~50% more expensive after 2027-28 because the offset disappears. Factor this into the sell-vs-hold calculation.
If you hold via a trust: the land tax surcharge stays. Combined with the 2028 trust minimum tax, consider whether the structure still pays for itself.
If you're buying: NSW land tax is progressive on land value. Two $1M properties cost less land tax than one $2M property (until threshold optimisation runs out). The aggregation matters more after 2027.

Caveats

Land tax thresholds and rates change annually. The 2025-26 values cited above are correct at time of writing (late 2026); verify with Revenue NSW for the assessment year you're modelling. The federal 2027 negative-gearing restriction is proposed and may change before legislation.

Byrz's engine models NSW (and other state) land tax across the full hold period when enabled, and shows the after-tax impact correctly under both regimes. See the sample report.