Benjamin Franklin famously declared “in this world, nothing is certain except death and taxes.”
The Victorian Government this week slugged property investors with $5 billion worth of extra taxes.
From 1 January 2024, until 2034, the tax-free threshold for land tax will decrease from $300,000 to $50,000.
Those who pay land tax will attract a temporary additional fixed charge starting at $500 for landholdings between $50,000 and $100,000.
There will be a $975 fixed charge for landholdings above $100,000 and the tax rates will temporarily increase by 0.1% for land values above $300,000.
The principal place of residence will remain exempt from land tax.
The lower threshold alone will lift the number of landowners paying land tax from 380,000 to 860,000.
For me personally, my two investment properties in Victoria, will now have a land tax bill of $1,950, up from $775. An increase of 150 per cent and an extra $23 per week.
While I think our governments should be incentivising property investors to build much needed housing, this announcement isn’t surprising. Our governments are extremely indebted and need to pay the money back somehow.
The Australian Government is leading the pack with nearly $1 trillion in debt, a figure roughly 50 per cent higher than it was before the pandemic.
Since 2018, Victorian taxpayer debt has exploded from $46 billion to $165 billion. New South Wales has not done much better, with debt leaping from $58 billion to $160 billion in just five years.
Victorian government debt has increased 194 per cent in the past decade, substantially more than any other big state, including NSW (116 per cent), Queensland (60 per cent) and Western Australia (45 per cent).
The only way these debts can be paid back is by either increasing taxes, cutting expenses, or both.
What’s next? I wouldn’t be surprised if the Australian Government scraps the planned stage three tax cuts next year. The pension is the biggest expense our government has with welfare consuming 37 per cent of the budget and growing by 13 per cent per annum. It’s surely only a matter of time before the Government pools the value of our home into pension eligibility calculations.
As property investors, these changes shouldn’t have any net impact on us.
The extra $23 per week in land tax will be passed on to my tenant and you should do the same. The disincentive to invest in Victoria means less supply which will cause my rents, and the values of my houses, to increase further.
All eight of my investment properties are negatively geared so I don’t pay any more tax than I need to, and I won’t rely on the Government to give me an income in retirement.
If you own property in Melbourne today, hold onto it! 1 million overseas migrants are expected, and Melbourne and Sydney take in 70 per cent of those migrants. Roughly 350,000 of the 1 million will be settling in Melbourne.
An extra $23 per week will pale in significance to the increase in the value of land in Melbourne over the coming years. The time to act is now! |
