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Alongside, the Victorian government’s state budget announcement on Tuesday (23 May) to abolish stamp duty for commercial and industrial properties, it will also reduce the tax-free threshold for land tax from $300,000 to $50,000, from 1 January 2024.
Victoria's land tax is an annual tax based on the total taxable value of all the land owned, such as investment properties and holiday homes, however, the family home will remain exempt.
Those who pay land tax will also incur a temporary fixed charge starting at $500 for properties up to $100,000 in value and $975 for those up to $300,000.
The tax grab is estimated to raise $4.7 billion to repay COVID-19 debt over four years, Victorian Treasurer Tim Pallas said.
In addition, the tax is expected to increase along with land values throughout that time, so the cost to investors will likely be much higher, according to the Property Investment Professionals of Australia (PIPA).
PIPA chair Nicola McDougall said the policy will lead to the exodus of investors in Victoria who are already struggling with significantly higher mortgage repayments.
“The new land tax grab appeared to be modelled on the Queensland government’s similar failed policy last year,” Ms McDougall.
“It does seem like the Victorian government has taken an illogical page out of the Queensland’s government’s ill-fated and investor-focused land tax playbook from last year, and we all know how that worked out for them.”
Property Investors Council of Australia (PICA) chair Ben Kingsley estimated Victorian investors with land holdings worth $1 million will be slugged about $2,000 in extra land tax per year.
“This is what happens when you have so much debt as well as continued economic mismanagement and self-serving governance,” Mr Kingsley said.
Victoria’s stamp duty reforms welcomed
Meanwhile, the state’s peak real estate body has welcomed the state government’s announcement to axe stamp duty for commercial real estate and said it “is an encouraging sign for the sector”.
Under the new system, the first purchaser of a commercial or industrial property after 1 July 2024 will have the option to choose to either pay the property’s final stamp duty liability as an upfront lump sum or opt to pay fixed instalments over 10 years equal to stamp duty and interest with a government-facilitated transition loan.
Real Estate Institute of Victoria (REIV) chief executive Quentin Kilian said the announcement showed the government is listening to the sector’s needs.
However, Mr Kilian will “review the announcement fully”, taking particular interest in any increase in ongoing property ownership costs and how they might impact capital flows in the commercial sector.
“Stamp duty is a significant barrier to property investment and for as long as it remains in the residential property sector, millions of aspiring home owners and thousands of everyday mum and dad investors are impeded, which creates a significant negative ripple effect on the rest of the market,” Mr Kilian said.
“We look forward to continuing conversations with the government, and other political representatives, as they engage the property sector on the creation of better policy for the sector.”
The annual property tax is set at a flat rate of 1 per cent of the property’s unimproved land value. Once a property enters the new system after this time, stamp duty will never again be payable on a transaction and the annual property tax will apply.
The arrangements will not apply to the current owner of any commercial or industrial property purchased before the middle of next year.
[Related: Victoria to abolish stamp duty for property tax]
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