Updated 26 October 2026
CM Law's Ultimate List: The top 50 FAQs on Buying a Residential Investment Property #12: Property Taxes
More residential investment property questions
Calculate the return after tax and borrowing costs
Property taxes affect what you pay to buy an investment, the income you retain each year and the proceeds when you sell. For NSW investors, transfer duty, land tax, income tax and capital gains tax need separate calculations. GST can also matter for development and certain sales.
A rental appraisal is only the starting point. Before signing, prepare a cash flow forecast and have the ownership structure and contract checked by a lawyer, with tax calculations reviewed by your accountant.
Christine on the pressure on investment returns
Christine Manolakos notes that achieving a sustainable investment return is becoming increasingly difficult in a rising interest rate environment, particularly alongside the freeze on NSW land tax threshold indexation. Higher borrowing costs and potentially larger land tax bills can absorb rental increases.
The RBA raised its cash rate target to 4.60% on 29 September 2026. Your loan rate is separate and depends on the lender and loan terms.
Gross rental yield measures annual rent against the property price or value. It excludes interest and other expenses. Christine’s practical point is to examine the money remaining after those costs and test whether you could fund a shortfall during vacancies or further rate increases.
Include transfer duty in the purchase budget
NSW transfer duty, commonly called stamp duty, generally uses the higher of the purchase price and market value. Use the rates applicable to your transaction rather than an old percentage estimate.
Allow for duty alongside legal fees, searches, inspections and loan costs. Duty on acquiring an investment property is generally a capital cost rather than an immediate rental deduction.
Do not assume first-home buyer concessions cover a property bought solely for investment or through a trust. Eligibility and residence requirements matter. Foreign purchaser surcharges may also apply and require separate advice.
Understand the frozen NSW land tax thresholds
From 1 January 2025, the general land tax threshold is fixed at $1,075,000 and the premium threshold at $6,571,000. The freeze affects thresholds, not land valuations or the amount of every owner’s bill.
Under the ordinary general rate, land tax is $100 plus 1.6% of taxable land value above $1,075,000. Above the premium threshold, it is $88,036 plus 2% of the excess over $6,571,000.
Revenue NSW generally uses the three-year average of unimproved land values, excluding buildings. Taxable NSW holdings are combined; there is not a separate threshold for each investment property. Ownership at midnight on 31 December determines liability for the following tax year.
The practical consequence is that rising assessed values can move an investor into land tax or increase an existing bill without another purchase. Averaging can spread the effect over several years. Check your assessment and forecast future bills rather than assuming last year’s amount will continue.
Check the ownership structure before buying
Many discretionary trusts and some unit trusts are special trusts without the general land tax threshold. Joint ownership and company structures also have specific assessment rules. A trust is not an automatic tax-saving arrangement.
Foreign ownership can trigger surcharge land tax, which has no tax-free threshold, as well as purchaser duty surcharges. Have the proposed owners and any trust deed reviewed before exchange. Changing ownership later may itself create duty and CGT consequences.
A real case about trust documents and land tax
In Fanous v Chief Commissioner of State Revenue [2019] NSWCATAD 64, land held through a unit trust was assessed without the land tax threshold because the operative deed created a special trust.
The trustee later supplied another deed said to establish a fixed trust and sought revised assessments for 2016 and 2017. NCAT confirmed the assessments: the later stamped deed did not retrospectively change those liabilities.
The case illustrates why the actual deed and its legal effect require checking before purchase and the relevant taxing date. Calling an arrangement a unit trust, or later supplying different paperwork, does not guarantee access to the threshold.
Test the cash flow with realistic assumptions
Consider a hypothetical $1.5 million investment renting for $900 a week for 52 weeks. Annual rent is $46,800, producing a gross yield of 3.12%. Assume annual operating expenses of $8,000 and ordinary land tax of $2,100, calculated on $1.2 million of averaged taxable land value with the general threshold available.
That leaves $36,700 before finance and income tax. A $900,000 interest-only loan at an assumed 6.5% costs $58,500 annually, producing a $21,800 cash shortfall. At 7.5%, interest becomes $67,500 and the shortfall becomes $30,800.
These are illustrative calculations, not market forecasts or a client result. They exclude acquisition costs, vacancies, major repairs, principal repayments and income tax effects. Include those items in your own forecast. Principal repayments also require cash even though they reduce the loan balance.
Review the forecast when a fixed rate expires, the rent changes or a new land valuation arrives. Keep an accessible cash reserve for bills that fall due before rental income or any tax refund is received. Expected capital growth does not pay current outgoings.
Separate tax deductions from cash savings
Declare rental income and claim only expenses allowed under the tax rules. Interest deductibility generally depends on how borrowed money is used, not simply which property secures the loan. Private redraws may require interest apportionment; principal repayments are not deductible.
Repairs, improvements and initial defects can receive different treatment. Keep invoices, loan records and evidence of periods rented or genuinely available for rent.
A tax deduction reduces taxable income; it does not reimburse the entire expense. Do not assume a rental loss will always be deductible against salary. The forthcoming changes make acquisition dates and property classification particularly important.
Plan for CGT and the coming federal changes
The ATO explains that a capital gain generally compares sale proceeds with the adjusted cost base, including eligible acquisition and disposal costs. The relevant CGT event usually occurs when the sale contract is made, rather than at settlement. Capital losses and previous deductions can affect the calculation.
Under the rules applying before 1 July 2027, eligible Australian resident individuals can generally access a 50% CGT discount after holding an asset for at least 12 months. Companies cannot use that discount. It reduces the eligible gain, not the tax rate.
Treasury’s 2026 reform guidance describes major changes from 1 July 2027. Negative gearing for residential property will generally be limited to new builds, with protection for properties held before 7.30 pm AEST on 12 May 2026. For affected established housing, losses may offset residential property income and gains or be carried forward, rather than reducing salary income.
The CGT reforms replace the 50% discount with inflation-based treatment and introduce a minimum 30% tax on relevant gains accruing from 1 July 2027, subject to exceptions. Eligible new builds can retain the 50% discount as an alternative. The first stage is law, while further implementation provisions require checking. Obtain transaction-specific advice rather than carrying the old assumptions into a long-term forecast.
Check GST before developing or selling
Ordinary residential rent and sales of existing residential premises are generally input taxed: GST is not charged and related GST credits are generally unavailable. Selling new residential premises in an enterprise can be taxable where registration requirements are met.
GST is not invariably 10% of the sale price. An eligible margin scheme uses a different calculation and requires conditions to be satisfied. Have GST, withholding and contract clauses checked before signing a development or sale contract.
Speak with Christine before committing
Ask Christine Manolakos and the CM Lawyers conveyancing team to review the purchase contract, ownership structure and land tax position before exchange. Have your accountant model current and future tax outcomes alongside your actual borrowing costs.
Bring the contract, proposed ownership details, land values for existing holdings, loan terms and rental estimate. Contact CM Lawyers to arrange a review. This guide should always be checked against your circumstances by a lawyer and an appropriately qualified tax adviser.
This article provides general information for NSW property investors as at 26 October 2026. It is not personal legal, tax or investment advice. Obtain advice about your circumstances before acting.
Key resources
Revenue NSW transfer duty calculations — Current rates and transaction values.
Revenue NSW land tax thresholds and rates — The fixed general and premium thresholds.
Revenue NSW land tax calculations and trust assessments — Valuations, ownership and threshold eligibility.
Fanous case summary from Revenue NSW — A verified decision on trust documents and land tax.
RBA September 2026 monetary policy decision — The increase to a 4.60% cash rate target.
ATO CGT discount guidance — Current eligibility and qualifications.
ATO rental interest guidance, rental property CGT guidance and residential GST guidance — Tax treatment of borrowing, sale proceeds and residential property.
Treasury 2026 tax reform guidance and implementation update — Changes affecting longer-term investment projections.
MoneySmart property investment guidance — Costs, risks and investment considerations.
CM Lawyers — Property contract reviews and fees — Have the contract reviewed before you sign or bid.
