The way property owners pay tax is about to change in Victoria. This will impact rental property owners and property management professionals.
In a move which will affect hundreds of thousands of people, the Victorian Government has revised the threshold for land tax paid by investors and holiday house owners.
In the past, the value threshold for land tax was $300,000. From January 2024, it will start from $50,000.
The new annual land tax charges vary between:
$500 for properties with a land value of between $50,000 and $100,000
$975 for properties with a land value of between $100,000 and $300,000
$975 plus 0.1 percent of the land’s value for properties with a land value of more than $300,000.
As reported in The Standard, from January 2024, 860,000 landlords and holiday home owners in Victoria will pay $1,300 a year on average in extra land tax as a result of these changes.
In addition to this, the absentee owner surcharge will increase from two percent to four percent. This applies to foreign investors who do not reside in Australia (this link will help you figure out if it applies to your clients).
These changes were announced in the state budget, which introduced a raft of property related reforms, including replacing stamp duty with land tax for commercial property purchases. The land tax adjustments have been labelled temporary and are aimed at paying off COVID-related debt over the next ten years.
The State Opposition and real estate industry insiders have been quick to point out Victoria now has the highest property tax rates in the country. They have claimed the tax is likely to either be passed onto renters, or it will prompt investors to buy interstate instead of Victoria in order to generate better return on investment.
What does this mean for your rent roll?
While this new land tax may not seem like a budget-breaker, it adds pressure to already stretched finances for investors who are dealing with higher interest rates and other increased expenses.
As recently reported, the typical rental property owner isn’t an “affluent aristocrat”. In fact, tax data shows most landlords report a taxable income of under six figures. What’s more, there are more landlords who report earning $18,200 to $45,000 income bracket than $120,000 to $180,000. It’s easy to see why an additional investment property tax may have some individuals rethinking their strategy.
If you manage a rent roll, the first thing you need to do is communicate the tax changes with locally-based and overseas investors who own property in Melbourne or the rest of Victoria. Outline the updates and recommend your clients speak to their accountant about how much the new tax will cost them, so they can be prepared come July next year.
Because the tax is based on the value of the land, you may also need to work with your clients to figure out exactly how much their land is worth. This will help them understand how much they will have to pay in land tax over the next ten years.
In terms of expense management, some clients may be ok with absorbing the costs, while others may need to adjust the rent they charge (if it’s possible under the terms of the contract) in order to cover these additional fees. It’s a good idea to conduct an overall review of costs so you can come up with a strategy together.
An increase in investment property taxes and costs is never welcome and hopefully your clients won’t have a ‘shoot the messenger’ attitude to the news. If you communicate well and take a collaborative approach with your clients, this update shouldn’t impact your rent roll in too significant a way.
If your property owner clients do decide to sell, introduce them to the selling agents in your team or establish a referral arrangement with a sales-focused agency so you at least have a financial boost from their departure.
Finally, there is always the option to expand your rent roll by making a purchase, or to sell all or part of your rent roll so you can focus on other things. For more information, get in touch with BDH Solutions today.