Vic to be hit with stamp duty, land tax hike

The Daniel Andrews Labor government has announced that the Victorian budget 2021-22 (due to be handed down on Thursday, 20 May) will contain “targeted measures” worth $2.7 billion, including new stamp duty taxes for home buyers and property taxes for investors.

The announcement of the measures has come at a time when the federal government introduced measures such as the HomeBuilder package and the First Home Loan Deposit Scheme (FHLDS) New Home Guarantee to address housing affordability issues in Australia, and provide stimulus measures during the coronavirus pandemic.

Meanwhile, the NSW government launched a public consultation in its 2020-21 budget last year to seek views on tax reform that would enable home buyers to opt out of stamp duty and instead choose a smaller annual property tax.

What’s entailed in the new measures?

The Victorian government said it will bring in a new premium stamp duty rate for property transactions with a value above $2 million, which would increase stamp duty payable to $110,000 plus 6.5 per cent of the dutiable value in excess of $2 million.

The government said that it expects the change to impact less than 4 per cent of all property transactions, and is estimated to raise an additional $137 million for the government next financial year.

In addition, the government will also introduce a new windfall gains tax on property investors who profit from the government’s decisions to rezone ex-industrial land, or create new residential estates, explaining that property developers can make significant windfall profits overnight.

The government said that developers and speculators will face a windfall gains tax of up to 50 per cent applied to planning decisions to rezone land from 1 July 2022, adding that the tax on these profits will “claw back” around $40 million into the state government’s coffers.

The total value uplift from a rezoning decision will be taxed at 50 per cent for windfalls above $500,000, with the tax phasing in from $100,000, the government said. It added that the “vast majority” of land holders will not be affected, while land subject to the Growth Areas Infrastructure Contribution will also not be affected.

According to the state government, the measure is aimed at balancing home buyers wanting to purchase a home and property investors who continue to profit from increasing property values.

Furthermore, the state government said that from 1 January 2022, private gender-exclusive clubs will no longer receive the land tax concession available to charities, clubs and associations, which would bring it into line with other private organisations liable to pay land tax on their landholdings.

The land tax rate will rise by 0.25 percentage points for taxable landholdings exceeding $1.8 million and 0.30 percentage points for taxable landholdings exceeding $3.0 million, and will raise more than $380 million a year over the budget and forward estimates, the government said.

The announcement of the budget measures has come as the government revised its forecast for the net operating balance in 2020-21 from a $1.2 billion surplus in the last budget update to a deficit of $23.3 billion, according to the Parliamentary Budget Office.

It added that it expects the net operating balance to improve to a $5.9 billion deficit by the 2023-24 financial year.

Commenting on the state budget measures, Victorian Treasurer Tim Pallas said: “It’s only fair that those making large profits return a reasonable proportion to the community – this means more Victorians can have the schools, hospitals and support they need and deserve.

“Our tax system is fair and progressive – making sure that everyone pays their fair share to support Victoria’s economic recovery.”

He concluded: “The pandemic has asked all of us to focus on the things that matter most – government is no different. We’ve invested in our health system to keep Victorians safe, and we’ve kickstarted our economic recovery with hundreds of thousands of new jobs.”

In the 2020-21 budget, the Victorian government announced an investment of over $293 million to a fund a stamp duty concession of up to 50 per cent for homes valued at up to $1 million.

Property Council opposes ‘senseless’ measures

Responding to the Victorian state government’s measures, the Property Council called them a “property tax grab” aimed at boosting state revenue, and said that they rely on “unfair tax hikes” on home buyers, owners, renters and anyone else in Victoria who has invested in property as part of their retirement plan.

According to the Property Council, the tax increases to property include:

• A 19.0 per cent increase in land tax on properties valued at between $1.8 million and $3.0 million, with the rate to increase from 1.30 per cent to 1.55 per cent;
• A 13.0 per cent increase in land tax on properties valued at more than $3.0, with the rate to increase from 2.25 per cent to 2.55 per cent; and
• An 18.2 per cent increase in stamp duty on a property’s value above $2.0 million, with the value up to $2 million to be taxed at the current rate.

Commenting further, the council said: “The Property Council has rapidly mobilised and fiercely taken up the fight against these senseless changes.

“We have heard from members about the harmful impact of these tax hikes on housing affordability, job creation, project feasibility (especially in the middle ring where housing supply needs the biggest boost), and the risk to continued investment into Victoria is this becomes law.”

The council added that it is outlining the risks to the Victorian government as well as the opposition and the cross benchers over the next few days as they prepare to vote on this in Parliament within the next fortnight.

It said: “To effectively put forward our case, we want to collect as many examples from members as possible of what these changes will do, across the wide spectrum of the property industry, including residential, commercial, industrial and mixed use.”

The Property Council said that Mr Pallas will meet with its members at a post-budget breakfast on 25 May.

Measures to worsen housing affordability: REIV

The Real Estate Institute of Victoria (REIV) has called the Victorian government’s measures a “planned” assault on property owners, adding that stamp duty and land tax increases would impact self-funded retirees and worsen housing affordability.

REIV president Leah Calnan said the tax increases would make Victoria a less desirable place to invest and would impact its economy and jobs.

Commenting further, Ms Calnan said: “The government continues to burden Victorians with increases to property taxes. Property already accounts for more than 40 per cent of government revenue. There is not much more capacity any one sector to absorb further tax burden.

“These sledgehammer taxes could cause a flight from property by self-funded retirees, for which property investment is their only form of income.”

REIV CEO Gil King said the measures would push home ownership out of reach for more home buyers and impact on retirement plans for others.

“At a time when commercial CBD properties are struggling to find tenants, the increased taxes will put an extra burden on commercial real estate, which has already had to grapple with COVID-19 lockdowns throughout 2020,” Mr King said.

“The vast majority of state government COVID-19 support was directed to renters, not property owners – these taxes will be the final straw for many. It is also highly likely that increased property taxes will flow on as rent increases.”

He concluded: “This ill-considered announcement shows a fundamental misunderstanding of the real estate market, and the contribution it makes to the economy, including its influence on Victoria’s economic recovery post-COVID.

[Related: Victoria commits $5.4bn to home building]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.