What our analysis shows
Our calculations, data as of 23 October 2026
- In NSW, Revenue NSW's published ruling still treats a rented flat, including a detached one, as an "excluded residential occupancy" that keeps the home exemption. In August 2025 the tribunal in Hussein v Chief Commissioner read the Act more narrowly: the concession needs the rented flat to be in the building that contains the owner's home. The ruling and the tribunal now point in different directions.
- If you own no other taxable land, NSW's $1,075,000 threshold protects most owners either way. On a $1.6 million Sydney block, losing the exemption on the whole site would cost about $8,500 a year; losing it on a 30% share would cost nothing.
- Owners who already hold an investment property are exposed: with $800,000 of other taxable land, a 30% share of a $1.6 million home block adds about $3,380 a year.
- Victoria taxes the flat's part of the land from the 2026 land tax year and keeps the rest exempt. Its threshold is only $50,000, so most rented flats will attract tax: typically $975 a year on a 30% share of a $900,000 site.
Yearly land tax in Victoria on the flat's share of the site
- $600,000 site, 30% share$975
- $900,000 site, 30% share$975
- $1,200,000 site, 30% share$1,530
SRO general rates from the 2024 land tax year, no other taxable land. How SRO splits a site between home and flat is decided case by case; 30% is our illustration.
NSW: the Hussein decision
NSW exempts land used as the owner's principal place of residence. The Act allows an "excluded residential occupancy" without losing the exemption: one room, one suite of rooms, one flat, a flat or suite plus one room, or two rooms let to different tenants. Revenue NSW's ruling LT 082 notes that a "flat" can be a detached building, which is how rented backyard granny flats have been treated.
In Hussein v Chief Commissioner of State Revenue [2025] NSWCATAD 202, decided in August 2025, the owner's home was smaller than the rented building on the same lot. The tribunal upheld the loss of the exemption for the whole site. More important for everyone else, it said the excluded occupancy concession, as written, applies only where the rented flat is in the same building as the owner's home, and that the published guidance did not reflect the law. The owner could have applied for a partial concession on the home's share and had not.
For NSW owners the position is unsettled. A detached rented flat may now be assessed on part of the land under the partial (section 9C) concession, or Revenue NSW may continue its ruling until the law is changed. If you rent a detached flat, review your land tax return with the decision in mind and keep the home and flat clearly separate on paper. Note also that from the 2026 land tax year NSW requires the owners who live in the home to hold at least 25% of it between them to claim the exemption, which matters where a parent and child share a title.
NSW: what it costs
NSW applies a $1,075,000 threshold to the total value of all your taxable land, then $100 plus 1.6% of the excess. Three scenarios for a home block with a rented flat:
| Home block land value | Exemption kept | 30% share taxable | Whole site taxable | 30% share + $800,000 other land |
|---|---|---|---|---|
| $800,000 | $0 | $0 | $0 | $0 extra |
| $1,200,000 | $0 | $0 | $2,100 | $1,460 extra |
| $1,600,000 | $0 | $0 | $8,500 | $3,380 extra |
| $2,000,000 | $0 | $0 | $14,900 | $5,300 extra |
Rates and threshold for land tax years from 2025 (frozen). The last column is the extra tax on top of what the other land already attracts. The 30% share is illustrative; Revenue NSW sets the actual apportionment. Source: Revenue NSW: land tax.
Victoria: partial exemption
The State Revenue Office says that from the 2026 land tax year, if income is earned from a separate residence on the land, such as a rented granny flat, the part of the land containing the home stays exempt and the part that earns income is taxable. Before 2026 the rule was stricter: earning income could cost the exemption altogether. Each year's assessment looks at how the land was used in the previous year, so a flat let during 2025 shows up in the 2026 assessment; tell the SRO when the use changes, because late notice can bring penalty tax and interest. Source: SRO Victoria: changes to your principal place of residence exemption.
Victoria: what it costs
Victoria's general threshold has been $50,000 since 2024, with a fixed $500 between $50,000 and $100,000 and $975 between $100,000 and $300,000. So on most suburban blocks the flat's share lands in one of those bands:
| Site value | 20% share | 30% share | 40% share |
|---|---|---|---|
| $600,000 | $975 | $975 | $975 |
| $900,000 | $975 | $975 | $1,530 |
| $1,200,000 | $975 | $1,530 | $1,890 |
If you own other taxable land, the flat's share is added to it and taxed at your marginal band, which runs from 0.3% to 1.65% of value. Set the cost against the rent: $975 a year is about two weeks of rent on a Melbourne flat.
Other states
- South Australia decides by floor area: the home exemption is full only if at least 75% of the floor area of all buildings, sheds included, is used as your residence. See granny flats in SA.
- Queensland, Western Australia, Tasmania and the ACT have home exemptions with their own conditions on income-producing use. We did not find published guidance specific to a rented granny flat; ask the revenue office for a private ruling before you sign a lease if your land value is high.
Ways to keep the bill down
- Know your total holdings. Thresholds apply to all your taxable land together. The flat matters most if you own, or plan to buy, other investment property.
- Claim the partial concession for the home's share where the full exemption is in doubt, as the Hussein owner did not.
- Family use without rent generally keeps the land a home, with no income to tax.
- Count it in the yield. Our yield calculator has a land tax field for this.
This week's worked example
Week of 19 October 2026. A new example, rule and owner report every Monday.
A 80 m² two-bedroom flat with a standard finish on a flat block, services 30 m from the house, in Monash: our model puts it at $259,700 turnkey ($228,500–$291,000), or $3,250 per m². At the area's median 2-bedroom bond rent of $589 a week it would return 9.3% net and pay back in 13.9 years after tax.
Rule check: From the 2026 land tax year, Victoria taxes the part of a home's land that contains a rented granny flat and keeps the rest exempt; before 2026 earning income could cost the whole exemption.
From an owner (NSW, 2025): A family planning for a 77-year-old mother to downsize into a granny flat behind her own house struggled with how to protect the son's contribution, the siblings' inheritance and the pension at once.