My phone is running hot at the moment with people calling and asking questions about tax on property: land tax, windfall gains tax, capital gains tax.
A heck of a lot of people who have not previously received a property tax bill have received one in the mail in February, and the due date for payment is looming.
Why are we being charged these taxes? I thought it prudent to use this article as an information piece to explain how some of these property taxes are calculated and what exemptions we may be eligible for.
The following should not be read as taxation advice, and in all circumstances I recommend you speak to your accountant or a taxation expert. However, as valuers, we are also employed in the calculation of property value for taxation.
It’s important to understand that local and state government take their slice of proprty tax based on a property’s value, or a proportion of the value. Did you know 47 per cent of the value of all new land allotments is paid in tax?
The local council collects rates, these are based on Capital Improved Value (CIV) or Net Annual Value (NAV). These rates fund the council’s operations and depend on how much money the council budgets that it needs to operate in the next financial year.
Every property in a municipality is valued each year, this valuation is undertaken on a “mass” basis. This means that the valuers use formulae and methodology to group properties and assess them so that they can be taxed fairly. It is a very different methodology to valuations undertake for other purposes, such as mortgages. You should never rely on your rates notice valuation for anything other than to assess your rates and tax charges.
The state government has a few more tax arrows in its quiver and it uses both the rating assessment and contract prices to assess their property tax levels. Land tax is based upon the site value assessed by the municipal valuer and is payable if the total value of all the taxable Victorian land you own at the end of each year exceeds $300,000, excluding any exempted land.
When purchasing property, we pay stamp duty, which is based on a set rate and applied to the purchase price of the property. The higher the price, the higher the duty payable. Stamp duty presently sets a purchaser back about 4-6 per cent of the purchase price with some concessions available to first home buyers and pensioners, which are well worth looking into. Property value increases directly result in higher bills, whichever way you slice it.
When selling property, we may be assessed for capital gains tax. This is a tax on the increase in value of your property assets while you owned them. The more the property value has increased, the higher the tax will be.
Be sure to check if you qualify for an exemption: is the property your primary place of residence, your main residence or have you owned it before September 20, 1985? If you have a rural parcel greater than five acres, the house and curtledge is exempt (house and five acres). If you own a property which is greater than five acres and have a capital gain, you would be well advised to get a valuation to work out the proportion of the values that may not be taxable.
Other state government taxes that may be levied directly on the assessed value of your property include the fire services property levy and the new windfall gains tax, which starts in July.
Taxable land includes investment properties: residential rentals, commercial properties, holiday homes and vacant land. Exempt property includes your home (principle place of residence) and your farm (primary production land) plus sectors such as charitable institutions, retirement villages, disability services rooming houses and caravan parks.
The State Revenue Office (SRO) uses site value, which is drawn from the municipal ratings valuation. Loosely speaking, it’s the CIV of your property excluding the value of any improvements. This means that in a moving market, such as the one Victoria has experienced since 2020, land tax assessments can increase substantially. Spare a thought for the coastal holiday home owners that were located on an affordable block worth less than $300,000 that may well now sell for $500,000. This might trigger their first assessment for land tax that according to the SRO’s calculator would cost $775 annually, with no additional income generated from the property.
As total taxable value increases, land tax payable increases at a higher rate. As illustrated in the SRO’s online calculator:
- Total Taxable Value $299,000 Estimated Land Tax Payable nil
- Total Taxable Value $500,000 Estimated Land Tax Payable $775
- Total Taxable Value $1,000,000 Estimated Land Tax Payable $2,975
- Total Taxable Value $5,000,000 Estimated Land Tax Payable $78,975.
This is all based on the assumption that the rating assessment is correct, and sometimes it may not be. Where a person is “aggrieved” by a valuation of land and wants to have it reviewed by a property valuer, an objection can be lodged.
While it all sounds serious, a review is a relatively simple process that allows the rating authority to review the valuation and decide if it’s reasonable. It involves filling out and submitting a form online, providing any information you wish to have considered. There’s no cost involved and typically you will be contacted by a Certified Property Valuer to discuss the concerns raised. The valuer will perform analysis and either recommend a different value, or disallow the objection if they think it was reasonable. If you still disagree with the valuer’s decision, you can then appeal that decision at VCAT, which is where seeking professional valuation advice and paying application fees becomes a factor.
The instructions on how to object should be provided on any rating or land tax assessment notice you receive. It’s very important to note the time limit that applies – objections must be submitted within a two-month period from receipt of the notice. After the objection period has closed, there is no further recourse available, so it pays to consider your options at the time you first get the bill.
This article written by Gareth Kent appeared in the Geelong Times on 14th April 2023.