THEY say there are few certainties in life, but you can rely on death and taxes.

The Victorian Government is reinforcing this theory, with a recent cash grab through the increase of land tax payments.

In an attempt to fix the COVID budget blowout, the government has changed the parameters around who pays land tax, and the rate it is paid at.

Plus they have lumped on a separate ‘COVID budget recovery fee’ that is slated to be payable for the next 10 years.

Many ‘property investors’ (eg average families) will be stung for the first time under the changes.

 Those who have happily owned a single low value rental property may find themselves on the hook for yet another payment to the government, with the threshold of land value at which you become liable for the tax being slashed from $300,000 down to just $50,000. The lowering of this threshold is apparently temporary, although no timeframe has been provided. 

Most property owners should have the bad news by now, with Land Tax Assessments distributed between January and June each year.

What is land tax?

Land tax is an annual tax payable to the state by the owners of land in Victoria, unless the land is considered exempt under the Land Tax Act 2005.

Land tax is charged on an increasing scale, similar to that of income tax, with the annual rate payable being up to four per cent of the unimproved land value (but generally sitting around one per cent).

For example, if an individual owned a holiday house with land value of $500,000 and a rental property with land value of $250,000, they would pay $3150 in land tax plus the COVID budget surcharge of $1750.

Land tax has existed in Victoria in one form or another since the 1870’s. It was first introduced as a way of taxing wealth and breaking up large tracts of underutilised land. These days the focus is taxing commercial and residential land investment; in particular, land rich individuals or entities.

Land tax threshold

Individuals in Victoria are currently able to hold investment land to the value of $50,000 before they are liable for land tax. Prior to this year, the threshold was $300,000.

In recent times, changes have been made so that ‘absentee owners’ (usually non-citizens located out of the country) pay a higher land tax rate.

Trusts only have a $25,000 tax free threshold.

COVID measures

A new ‘temporary’ land tax surcharge will apply for the next 10 years as a budget recovery attempt.

This surcharge is payable in addition to the regular land tax rates, and will range from $500 to $975 (plus 0.1 per cent increase to land tax for properties valued over $300k).

The absentee owner threshold has also been increased up to four per cent; that is, a non Australian resident who owns land in Victoria but doesn’t spend at least 6 months of the year in the country will pay four per cent of the land value in annual land tax. 

Principle Place of Residence

An individual’s home, or Principle Place of Residence (PPR), is automatically exempt for the purposes of land tax, regardless of the value.

In practice, this means that an individual can own the home they live in, plus an investment property with a land value not exceeding $50,000 without paying land tax.

Farming Land

Land that is used primarily for primary production purposes is also exempt from land tax requirements in Victoria. This is a long standing exemption, having been introduced in Victoria over a century ago.

Thankfully this exemption was left alone with the changes, for now. 

Unfortunately, it is not uncommon for the State Revenue Office (SRO) to incorrectly list the use of some farming land as commercial rather than primary production, and land tax is charged in error.

In some cases, this can go on for years, with the farmer not realising that their land should in fact be exempt from land tax.

Often, it’s not until the property is sold or subdivided that the mistake is picked up.

By this time, many thousands of dollars in tax could have been paid. The SRO have a four year rectification policy; that is, land tax that has been paid over the last 4 years can be refunded, but any paid prior to the four year mark is not recoverable.

Given the reduction in the threshold, there will no doubt be a fresh wave of incorrect assessments levied by the SRO.