Claiming Land Tax Paid in Arrears – What Year Is the Deduction?

📌 What’s the Issue?

If you pay land tax in arrears—that is, for a prior year in a later income year—which year do you claim the deduction in?

This is a common question for rental property owners and businesses, especially those who receive retrospective land tax assessments or who delay payment.

✅ General Rule for Land Tax Deductions

You can claim a deduction for land tax in the income year it is incurred, not necessarily the year it is paid.

For cash basis taxpayers, a deduction is typically claimed when paid.

For accrual basis taxpayers, the deduction is claimed when the expense is incurred—that is, when the liability arises, even if not paid yet.

📌 Most individuals and small businesses operate on a cash basis for tax purposes—so in those cases, the deduction is usually taken in the year of payment.

🏠 Example: Rental Property Owner Pays Land Tax in Arrears

Land tax for the 2023 year is assessed in that year but paid in February 2024.

If you're a cash basis taxpayer, the deduction is claimed in your 2024 tax return, when the tax was actually paid.

If you use accrual accounting, you may claim it in 2023, as that’s when the liability was incurred.

📎 Always check the date of assessment and payment date—and ensure it's for income-producing land to be deductible.

⚠️ Key ATO Requirements

To claim the land tax deduction:

The property must be used to produce income (e.g. rented out).

You must be legally liable for the land tax.

You need to retain evidence such as the notice of assessment and proof of payment.

❌ You cannot claim land tax:

On your main residence

For vacant land not used to produce income

🧾 Reporting the Deduction

Include the land tax in your rental property schedule (for individuals)

Businesses report it as a general deduction, ensuring correct year allocation

the RFBA implications—especially for government benefits or loans

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