Under the newly released Victorian state budget, big changes are coming in 2024 for land tax and stamp duty thanks to the new Covid debt levy. Today we’re focusing on Victoria’s land tax rates. We’ll go into detail about the changes in layman’s terms and who they directly impact so property owners can get prepared.
Victorian land tax rate changes
The State Taxation Acts Amendment Bill 2023 recently passed the Legislative Assembly in the Victorian Parliament. One of the key changes affecting property owners concerns Victorian land tax rates. They’re calling this the Covid-19 debt levy, and from 1 January 2024, it includes these main shifts:
- For general land tax rates, the tax-free threshold will reduce from $300,000 to $50,000.
- There will be a temporary fixed charge of $500 to $975 for taxpayers with land holdings with a taxable value of between $50,000 and $300,000.
- A $500 surcharge rate applies to taxable landholdings between $50,000 and $100,000.
- A $975 surcharge applies to taxable landholdings between $100,000 and $300,000.
- If your property exceeds $300,000, a $975 surcharge applies plus the below land tax rate increase of 0.1 per cent.
- Victoria’s residential land tax rate will increase by 0.1 per cent for land holdings above $300,000.
While the Victorian Government suggests this is a temporary change, the land tax surcharge rate will also apply to existing land tax customers from the 2024 land tax year for 10 years.
Will the new tax-free threshold affect you?
So, why so many changes? The Victorian government hopes to raise $4.74 billion in state revenue to repay Covid debt accumulated over the last three years. With the reduction in the tax-free threshold, these land tax changes are expected to see 360,000 more property and landholders pay land tax who haven’t before and impact 860,000 general taxpayers in total.
To visualise the impact, here’s an example. A property owner with an “unimproved taxable land value” of $1 million will have to pay $1,675 more per year. The State Revenue Office of Victoria defines unimproved value as your land’s value without capital improvements i.e. buildings. The Valuer-General Victoria determines site values in their annual general valuation process.
Land tax exemption
Now, the important thing to note is that these new land tax changes don’t affect everyone. The main people impacted are investment property owners. Rental property tenants may also feel the pinch of a future rent rise to compensate for the increased land tax.
The Property Council of Australia’s Victorian Executive Director, Cath Evans, agrees with this sentiment in a recent interview with ABC News. She believes the new land tax could be passed onto renters. Alternatively, she predicts it might drive investors interstate “where it’s easier to transact business”.
Existing land tax concessions are still in place, so new changes don’t affect “principal places of residence” (the family home). Other lands protected from the new fees include primary production land, charity-owned land, religious institutions, retirement homes and rooming houses. The value of your exempt property isn’t included under “taxable landholdings” and is therefore exempt from this new surcharge.
There are also currently land transfer duty exemptions for pensioners and concession card holders. The tax-free threshold is now $600,000 and $750,000, respectively, which brings them in line with first-home buyer exemptions.
Trust surcharge rate changes
Trust surcharge rates are charged if you’re an absentee owner or have a property held in any type of trust. Here are the new changes to land taxes with the Covid debt levy, affecting trust taxpayers and trust properties:
- If the taxable value is between $50,000 and $100,000, there is a $500 surcharge.
- If the taxable land value is between $100,000 and $250,000, there is a $975 surcharge.
- For taxable landholdings over $250,000, there’s a $975 surcharge and a similar land tax increase of 0.1 per cent.
The absentee owner surcharge will also increase from two to four per cent and the minimum threshold for non-trust absentee owners decreases from $300,000 to $50,000. The minimum threshold remains the same for trust absentee owners. The absentee owner surcharge is charged on top of land tax too.
In case you didn’t know, according to the state government, an absentee owner is someone who isn’t an Australian citizen or permanent resident or doesn’t ordinarily reside in Australia. For example, Victorian investment properties owned by foreign investors.
The government has said the rate increase brings Victoria in line with New South Wales’ foreign land tax surcharge of four per cent, which is the highest in Australia. Across the rest of Australia, it sits between 0.75 and 2 per cent. However, the key difference is that Victoria’s land tax surcharge includes residential, commercial and industrial properties, whereas in New South Wales it’s limited to residential land.
Land transfer duty changes
But wait, there’s more for commercial or industrial property owners. Victoria is saying goodbye to land transfer duty (a.k.a stamp duty) on commercial and industrial properties. Instead, the government is replacing it with an annual property tax from 1 July 2024. The annual property tax will be one per cent of the property’s “unimproved value.”
There will be two payment options for commercial and industrial properties sold on or after 1 July 2024:
- Pay the full stamp duty liability upfront as a lump sum.
- Pay a fixed annual property tax instalment over 10 years (plus interest) through a government-facilitated transition loan.
Airbnb tax?
The state government hasn’t ruled out implementing a new tax for people with holiday homes or short-term rentals listed on websites like Airbnb either. This is definitely something investment property owners and landlords need to keep an eye on.
Final Notes
It’s too early to determine whether general taxpayers will feel the effects of these increased costs and if it will impact rental properties and the Victorian rental market. However, the good news is that the changes don’t take effect for a year and not all property owners will feel the pinch.