Victoria’s land tax has enjoyed a high media profile lately, with reports that many property owners are facing substantial increases in the amount of land tax payable to our government.
“We know of an owner who’d lived in Albert Park for years before retiring and moving to the country,” says Greg Hocking, CEO at Greg Hocking Real Estate. “This year, he was shocked to discover that the rental income he’d received from his Albert Park property was less than his land tax bill. This speaks to the magnitude of the change in the way land tax is calculated and charged in 2019.”
Land tax thresholds haven’t been reviewed since 2009, despite the median house price in Melbourne growing by 98.5% in the following decade. To put this into context, someone owning a land tax-chargeable property at Melbourne’s median house price in 2009 (around $460,000) would have paid land tax of $695. Last year, assuming the same property had held at the median value ($826,500), the owner would have received a $2,108 land tax bill.
“Land tax has been a focus area for the Victorian Government over the past few years,” says Benjamin Marchesani from Hammersmith Lawyers. “The laws have evolved, and new categories have been created. Additionally, everything is online now, which means the government can easily compare land titles to the residential tenancies database to stay on top of tenanted and vacant properties.”
What is land tax?
Generally, anyone who owns property in Victoria aside from their own home or principal place of residence (PPR) may be required to pay land tax. You must pay land tax if the total taxable value of all the Victorian land you own as at 31 December each year is worth more than $250,000.
Along with stamp duty, land tax is one of the Victorian Government’s biggest revenue sources, worth around $3 billion each year.
How is land tax calculated?
Land tax is calculated based on the total taxable value of the land you own, excluding your PPR. It’s based on the value your local council assigns to your property in their annual rates notice and applies to all types of land, including residential and commercial properties, apartments and vacant land.
The current land tax tiers and rates can be found on the State Revenue Office website
Do I have to pay land tax?
You may have to pay land tax if you are a sole or joint owner of the following types of land in Victoria:
- Investment properties, including residential rental properties
- Commercial properties such as retail shops, office premises and factories
- Holiday homes
- Vacant land
You do not need to pay land tax on your own home or principal place of residence (PPR).
Why has my land tax bill increased in 2019?
Your 2019 land tax is calculated based on the site value of all taxable land you owned on 31 December 2018. Prior to this, the government was using 2016 valuations to calculate land tax – because most Victorian land has increased in value since then, many property owners have been surprised by a larger than expected land tax bill in 2019.
Additionally, 2018 council rates notices – and the associated land tax charges for the current year – don’t take into account the market downturn, leaving many property investors considering their options. For some, the hike in land tax means the costs of owning an investment property outweigh the benefits.
What is the vacant residential land tax?
Vacant residential land tax (also known as vacant residential property tax) is a tax on residential properties in Melbourne’s inner and middle suburbs which are unoccupied for more than six months in a year. Its purpose is to encourage property owners to make residential properties available for purchase or rent so that Melbourne’s housing stock is used as efficiently as possible.
Vacant residential land tax was introduced in 2017 and applied from 1 January 2018. It’s an annual tax of 1% of the capital improved value of the land, as determined by the local council and displayed on council rates notices.
At Greg Hocking Real Estate, we make it a priority to stay across the issues and industry changes that are affecting property owners. If an unexpectedly large land tax bill has you considering your options as an investor, contact your local office today for a no-obligation chat.