The Victorian Treasurer has recently announced the 2023-24 state budget and it contains quite a few nasty surprises!
This article I will discuss the land tax changes for residential property. In their budget speeches and interviews since the Premier and Treasurer have used comments like “These are well off people who can afford it” “This cost will not be passed on to renters” I think they are quite blind to the reality of Mum and Dad investors. Even before these changes Land Tax is a significant cost and detractor from holding investment properties; I have had many clients state clearly they were selling their property because of Land tax, these increases will only make this worse at a time when interest on mortgages is very high compared to recent years.
The current % based land tax rates are below (this is as at Jan 1st 2023 – not the new rates)
| Total taxable value of land holdings | Land tax payable |
| < $300,000 | Nil |
| $300,000 to < $600,000 | $375 plus 0.2% of amount > $300,000 |
| $600,000 to < $1,000,000 | $975 plus 0.5% of amount > $600,000 |
| $1,000,000 to < $1,800,000 | $2975 plus 0.8% of amount > $1,000,000 |
| $1,800,000 to < $3,000,000 | $9375 plus 1.55% of amount > $1,800,000 |
| $3,000,000 and over | $27,975 plus 2.55% of amount > $3,000,000 |
source: https://www.sro.vic.gov.au/land-tax-current-rates
The Changes:
Land tax is assessed at 1 January each year so the increases just announced take effect on the next assessment date; 1 Jan 2024.
Land tax is a tiered system based on the land value of a property owned (as opposed to the capital improved value), before the budget you only started paying tax when your land value hit $300,000. This may seem low and like pretty much all properties would be over this but think of for example a one bedroom unit or apartment. In these properties the land value could be quite low. After the budget the tax rates will be:
$50,000 – $100,000 $500 temporary levy + the relevant % (0.2% of the value unless a trust or absentee surcharge applies)
$100,000 – $300,000 $900 temporary levy + the relevant % (0.2% of the value unless a trust or absentee surcharge applies)
$300,000 + will pay the $975 + an additional 0.1% in temporary levy + the relevant normal % (as per existing table able +/- surcharges if applicable)
Just to be clear when they say temporary they mean 10 years! Not very temporary in my opinion. At the moment there is a shortage of rental properties in Melbourne and a historically low number of new buildings being built. I am certain this will make the situation worse with less investors willing to buy an investment property and some existing investors selling out of the market.
I just ran the numbers for one of my clients with a single investment property (a suburban unit) their land tax bill is going up from around $400 to over $2000. That is a substantial increase, and these are typical Mum Dad investors with three kids in school, their own mortgage and all the normal financial pressures. Yes they are better off than some but they will feel the impact of this new tax!
I will write a separate update on the payroll tax changes as well as land tax and stamp duty changes for commercial properties.
If you would like to discuss your situation including analysis of if your property is still the right investment for you please get in touch here: Property Accountants & Investment Advisors