Navigating Surcharges, Exemptions, and Changing Thresholds
Hold onto your wallets, Victorian property owners, because the State Revenue Office (SRO) has brought in a wave of changes to the land tax landscape. From temporary surcharges to revised thresholds and an evolving absentee owner scheme, it's enough to leave anyone's head spinning. Let's break down the key updates and what they mean for you.
The Headlines:
Starting from January 1, 2024, and spanning a 10-year period, several modifications will be made to the land tax structure. While exemptions will continue to be granted for properties such as main residences, the tax-free threshold will witness a substantial reduction from $300,000 to $50,000. This adjustment will expand the scope of properties subjected to land tax.
Under the new framework, rental properties, particularly apartments, are expected to come under the land tax system. Properties valued between $50,000 and $100,000 will attract a flat tax of $500, while those valued between $100,000 and $300,000 will be subject to a flat tax of $975. For properties valued over $300,000, the flat tax will be $975 plus existing tax rates, along with an additional 0.1% charge. Trusts will follow a similar structure, but with a threshold of $250,000 instead of $300,000.
Foreign investors residing outside Australia will face an increase in the absentee owner surcharge on their land tax. The surcharge will rise from 2% to 4%, and the tax-free threshold for absentee owners will decrease from $300,000 to $50,000, aligning it with the changes for domestic investors. Threshold Adjustments: The general land tax threshold has also dropped, now sitting at $50,000 (or $25,000 for trusts). This means more landlords and property owners will be liable for land tax.
Vacant Residential Land Tax will be expanded from 1 January 2025 to cover all of Victoria (currently only applies to inner and middle Melbourne suburbs), the tax will apply to homes when vacant for more than six months in the preceding year and as such the tax effectively starts from 1 January 2024.
A new progressive rate will apply to vacant residential land based on the number of consecutive tax years the land has been liable for the tax.
1% of the capital improved value of the land for the first year where the land was not liable in the preceding tax year;
2% of the capital improved value of the land where the land is liable for a second consecutive year;
3% of the capital improved value of the land where the land is liable for a third consecutive year.
Holiday home exemption applies to a property used and occupied by the owner as their holiday home (or second home) for at least four weeks in a calendar year.
Homes undergoing significant renovations or reconstruction will not be considered vacant for up to two years from the date a building permit for the construction or renovation was issued.
The Big Picture:
The SRO's land tax changes aim to raise revenue for the state, discourage land banking, and potentially increase housing availability. However, concerns remain about the financial burden on property owners, particularly those with smaller holdings or facing the absentee owner surcharge. The effectiveness of these changes in addressing housing affordability and market stability remains to be seen.
Stay Informed, Consult Professionals:
As the land tax landscape evolves, it's crucial to stay informed. Keep track of updates from the SRO, consider contacting our office for advice from one of our financial advisors or accountants, and understand your specific situation and exemptions. Remember, these changes are complex, and navigating them effectively requires clear information and smart planning.
This article provides a general overview of the SRO land tax changes. For specific details, exemptions, and calculations, please refer to the official SRO website https://www.sro.vic.gov.au/ or contact our office via info@vatcpa.com.au or (03) 9584 2277.