For many Australians, property has been a core pillar of their wealth creation and investment strategy, with ABS data showing that more than 2.2m - or 20% - of taxpayers owning an investment property in the 2020-21 financial year.^  Roy Morgan Research shows that 1 in 40 Australians own a holiday home.

While land tax on property holdings like investment properties and holiday homes has been a fact of life for many years, in Victoria in particular, many property owners are set to feel the sting of land tax for the first time.

As part of the 2023-24 State Budget, the Victorian Government introduced a COVID Debt Repayment Plan that included changes to land tax.  From the 2024 land tax year until 30 June 2033, there has been a change to land tax rates and thresholds, for the total taxable value (site value) of landholdings:

Total taxable value of land holdings	Land tax payable
< $50,000	Nil
$50,000 to < $100,000	$500
$100,000 to < $300,000	$975
$300,000 to < $600,000	$1350 plus 0.3% of amount > $300,000
$600,000 to < $1,000,000	$2250 plus 0.6% of amount > $600,000
$1,000,000 to < $1,800,000	$4650 plus 0.9% of amount > $1,000,000
$1,800,000 to < $3,000,000	$11,850 plus 1.65% of amount > $1,800,000
$3,000,000 and over	$31,650 plus 2.65% of amount > $3,000,000

Source: https://www.sro.vic.gov.au/rates-taxes-duties-and-levies/land-tax-current-rates

The increased land tax rates and surcharges is estimated to directly impact almost 900,000 Victorian taxpayers. According to the Financial Review, Victorian landowners would now pay an average of $1300 in extra land tax, however tax experts believe that owners of properties worth over $1million would pay $1675 more.

Impact on the market

Investment property owners with direct property falling within the affected value brackets may face a significant financial burden, especially if they own multiple properties subject to the increased taxes.

Higher holding costs may prompt investors to reassess the risk-to-reward ratio of their investments and whether the potential returns justify the increased tax liabilities. With the tax rates potentially reducing overall investment returns, direct property owners could be prompted to revisit their investment strategies and consider the long-term viability of holding onto certain properties.

Additionally, the higher holding costs associated with owning direct investment properties may deter some prospective investors from entering the market or lead to adjustments in rental prices to offset the increased expenses.

The Property Investments Professionals of Australia’s annual investor sentiment survey released in September 2023 showed that Victoria was the least attractive state for property investors in the nation. The survey also found that 25 per cent of respondents sold at least one investment property in Melbourne in the 12 months to August last year — the worst of any capital city — with rising land taxes the top concern.

Future Outlook

The impact of these land tax changes on the direct investment property market will depend on a variety of factors including economic conditions, property market trends, and investor sentiment. Investors nearing retirement age may be questioning the viability of direct property as an investment strategy in comparison to other more tax effective vehicles such as superannuation.

The evolving nature of the property market underscores the importance of staying informed and proactive in managing investment portfolios. As the taxation environment undergoes significant changes, investors must be agile in navigating the shifting landscape to optimize returns and mitigate risks effectively.

If you own an investment property and would like to review the impact of the land tax changes on your investment strategy or look into alternative options, please contact your advisor.

Source: https://www.afr.com/property/residential/tax-rise-last-nail-in-the-coffin-for-victorian-property-investors-20240304-p5f9ix

 

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.