How land tax changes will affect investors

It’s that time of year again. For all property investors, the issuing of land tax notices has begun and will arrive in your mailboxes over the next few weeks.

Victoria has undergone significant land tax amendments which will continue to have dramatic impact on the viability of property investment.

This is particularly true along coastal areas, which are dominated by second homes and investment properties. In 2022, the Victorian Government introduced changes to the state’s land tax system, significantly increasing land tax rates.

The government said the changes were designed to address what it believed were inequities in the previous land tax system. Under the new system, the tax-free threshold was reduced from $300,000 to $50,000. Further, the marginal rates for property investors with multiple properties increased. Another change is the SRO’s ability to data match investment property held in trusts with other ownership structures, in an attempt to identify properties that had not been reported compliantly.

This has effectively captured an additional circa 50,000 land tax assessments in the 2024/2025 period that previously were exempt. In last year’s land tax income, an estimated $1 billion more was paid to the Victorian state coffers than was expected. This year, we expect even more.

On top of these changes is the expansion of the Vacant Residential land tax; coming to effect from January 1 2025 This is a tax on properties that have a house vacant, equal to 1 per cent of the ‘Capital Improved Value’ this year, and next year this will go up to 2 per cent, then remain at 3 per cent every year thereafter. If your vacant investment property is captured in this period, this additional charge will appear on your land tax notice. For example, last week a land owner owning a future development site in the Geelong CBD with two dilapidated dwellings chose to demolish them rather than pay the tax.

One key thing to consider when making your land tax assessment is the assessed value. Land tax is assessed based on the “Site value”, i.e., the value of the land assuming the improvements had not been made. This value is taken from the Statutory Valuations undertaken annually in Victoria and for Land Tax the valuation date is the first January from the year before the assessment is issued

These valuations take the whole year to complete, and the value being attributed to the 2025 notice is from the valuation undertaken in 2024, reviewing your assessed “Site Value” is critical.

Your rates notice will show three values: Capital Improved Value (the value of the land and improvements), Site Value (value of the land without improvements), and net annual value. The value of the land tax notice comes from the 2024 rates notice.

Is the Site Value accurate? Consider sales of other vacant parcels in your precinct and the location, topography, access, and date of sale. If you have questions, I encourage you to consult your local valuer. I note that the definitions and complexities involved in a municipal valuation are vastly different to valuations undertaken for mortgage purposes, family law or estimates of value provided by your local agent. Hence, it’s important you speak with a qualified municipal valuer.

If you discover evidence to support your claim of an inaccurate value, you have two months from the date the notice is issued to make an objection. Details of how you object are located on the rates notice.

When an objection is made, the valuation firm engaged by the state government to do your municipal valuation will review your objection on a case-by-case basis. They will make contact with you to discuss it. Be warned that frivolous objections will be treated as such. However, if you have good grounds for objections, they are heard fairly and often granted. Still, like anything, our municipal valuation teams are dealing with a heavy workload from these changes and are just doing their jobs. You attract more bees with honey than with a stick!

With Gareth Kent, Director at Preston Rowe Paterson

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