How The State Budget Impacts Surf Coast Property Owners
Announced in May 2023, the Victorian government’s recent State Budget is likely to impact the Surf Coast’s property owners, especially those with holiday homes.
We explore what the changes are and what they mean for locals in our area, especially when it comes to land tax.
A lower land tax threshold
Last month, we wrote about 2022’s changes to the land tax threshold. Next financial year, the threshold will change again after the government announced a 10-year ‘COVID-19 debt – temporary land tax surcharge’.
The effect of the surcharge is that the land tax threshold for individuals will fall from $300,000 to just $50,000 for Financial Year 2024.
That means anyone who owns property in Victoria other than their home will now be subject to land tax, so long as the land value is more than $50,000.
Given our relatively high local median property values, virtually anyone who owns a holiday home or investment property on the Surf Coast will be liable for land tax from 1 July 2023 – the start of the new financial year. Those already paying land tax will have to pay more.
The new rates of land tax
From 1 July 2023, the following rates of land tax will apply to Victorians who own property outside the family home valued at more than $50,000.
|Value of land
|$50,000 – $100,000
|$500 flat surcharge
|$100,000 – $300,000
|$975 flat surcharge
|$975 flat surcharge plus a 0.1% increase to the existing rate of land tax
This means, for instance, someone who owns property outside the family home that’s valued at $400,000 could have had a tax liability of $575 in Financial Year 2023. However, for Financial Year 2024, they could be up for $1,650 in land tax – a rise of almost 287%.
Absentee owner surcharge also to increase
At the same time as the land tax threshold will fall, the Victorian government has announced that ‘absentee owners’ will face an increase in their surcharge from 2% to 4%. The absentee owner surcharge affects many owners who aren’t Australian or New Zealand citizens and who don’t ordinarily reside in Australia.
For property owners who do need to pay an absentee owner surcharge, the impact of this change could be significant. For instance, an absentee owner who owned land valued at $500,000 will find their surcharge increasing from $12,500 to $25,000.
On top of this, they’ll have to pay land tax of $1,950.
Impact on our local property owners
The new land tax hike will likely affect many Surf Coast property owners, given many local properties are investment or holiday homes.
Just researching the market?
While these land tax rises may be unexpected and cause some short-term financial pain – especially given the high median price in our local area – they may also bring something of a silver lining for some local property owners.
Some owners may find that the increase in land tax (and rising interest rates if their property is mortgaged) makes it more attractive to lease the property on the short-term rental market when they’re not using it.
Others may decide to rent their property out permanently, to help cover the new taxes and increased interest payments… potentially easing the current rental shortages. Which in turn will increase much needed stock to the rental market.
This could therefore flow on to be good news for tenants in the area, many of whom are finding it difficult to secure a home. Our local vacancy rate across the Surf Coast is just 0.5%, meaning that only one in every 200 leased properties is currently advertised for rent. In Anglesea, just 45 properties have been leased in the past year according to realestate.com.au, but 158 prospective tenants have been searching for a rental property in the past month.
Stamp duty reforms for commercial and industrial property
The Victorian government also used the budget to announce it would be scrapping stamp duty on commercial and industrial property and replacing it with a land tax. This tax, which will be 1% of the property’s unimproved land value, will be payable for 10 years after purchase.
The scheme is reminiscent of the NSW first home buyers’ land tax, which has replaced stamp duty for many new homeowners in that state. If it proves successful for commercial and industrial properties, perhaps we’ll see it transition to residential properties in the same way.
Regional infrastructure investment
The State government has pledged to invest $5 billion in regional Victoria. One billion dollars of this is earmarked to go towards health infrastructure, including training doctors, nurses and other health professionals for work in regional Victoria. The government says it will also be investing in regional schools, transport, tourism and more.
Although not directly tied to property, the development of new infrastructure plays a crucial role in job creation and can enhance liveability for all residents.
We recommend that you contact your accountant or financial advisor for further information or if you have any concerns.