Land Tax Hike Impacts Surf Coast Property Owners

Recent changes to Victoria’s land tax regime could have profound implications for the Surf Coast’s investment property and holiday homeowners.

We explore what they mean for you.

How have Victoria’s land tax laws changed?

In 2022, the Victorian government introduced changes to the state’s land tax system, resulting in significant increases in land tax rates for some property owners.

The government said the changes were designed to address what it believed were inequities in the previous land tax system. It also noted that Victoria’s land tax regime had not been updated in over 20 years.

Land tax is assessed based on the site value – or unimproved value – of land not used as a primary place of residence. If someone owns multiple investment properties or holiday homes, the total land value of all properties is added together.

Under the new system, the tax-free threshold for land tax was increased from $250,000 to $300,000. However, the marginal rates for people who own combined taxable land of more than $1.8 million were increased.

Why are the land tax changes controversial?

The rise in land tax rates in Victoria is expected to impact a range of property owners, including individuals, companies, trusts, and other entities that own land in the state. The changes were designed to ensure that larger landholders contributed more to the state’s revenue while providing relief to smaller landholders.

Under the new system, property owners with landholdings valued at less than $1.8 million are generally expected to see a reduction or no change in their land tax bills. Those with land holdings between $250,000 and $300,000 will actually be better off.

However, property owners with landholdings valued at more than $1.8 million are likely to see an increase in their land tax bills. And while it may be tempting to view people with more than $1.8 million in landholdings as wealthy, that’s not always the case. Often land increases in value over time even if the dwelling on it remains basic. It’s also worth noting that the increase will impact many commercial landholders, including small business owners. Some may find they’re up for a lot more land tax than they once had to pay.

Finally, anyone who owns land via a trust may also be impacted by the changes, as the new land tax system includes measures to prevent trusts from splitting their landholdings across multiple trusts to avoid paying higher land tax rates.

How will the increase to land tax impact your Surf Coast property?

If you own an investment property or holiday home on the Surf Coast, any change to your land tax bill will depend on the total taxable value of your landholdings.

Currently, the median house price in Torquay is $1,355,000, while in Anglesea it is $1,700,000.

If your total investment or holiday home landholdings are valued at less than $1.8 million, you’re likely to see no change or even a reduction in your land tax bill. However, if your landholdings are valued over that threshold, your tax bill will have increased. The table below illustrates by how much.

The impact of the land tax rise on the local property market

We believe the tax could have a number of implications in our local area. First, it could encourage investors affected by the rises to increase rents – at a time when rents are already increasing rapidly. It could also make a dent in the finances of some holiday homeowners, especially those who don’t make an income from their place.

For those looking to develop, the higher land tax also encourages higher-density construction because the bill is calculated on the unimproved value of the land and not any residence built on it.

Finally, it’s worth noting that many property owners are also small businesses. They may find the tax most difficult to cope with – potentially having to raise prices or suffer reduced profits.

The flip side, however, is that many landowners will see their tax bill reduced, and it may make land valued under $300,000 more attractive to investors.

And finally…

In general, the impact of the rise in land tax rates on holiday homeowners and investors on the Surf Coast will depend on a range of factors, including the total value of their landholdings, the way in which their properties are used, and whether they own properties through trusts or other entities.

You should always seek professional advice to understand how the changes will affect you.

Further information?

If you’re interested in buying or selling on Victoria’s Surf Coast, contact me for further information.