This is a year of change for the property market. In Victoria, the state government’s decision to review land tax annually instead of biannually is another adjustment that investors will be noticing – some more than others. So, what does this change mean, and how might it impact you?

What is land tax and how is it calculated?

Land tax is an annual fee that impacts investors with residential and commercial properties and individuals who own vacant land and holiday homes. Property owners who reside in their own home are exempt from land tax, as are those who own properties valued under $250,000.

When the total taxable value of the land owned by an investor is equal to or exceeds $250,000, then they pay an annual land tax. Local councils were traditionally responsible for calculating land value to establish land tax owed, using the same valuation process that determines council rates, and prior to 2019, land tax rates were calculated biannually, meaning the amount due from an investor remained the same for at least two years,

However, in 2017, the Andrews government announced they would introduce yearly calculations, and that the valuation process would be moved from the responsibility of councils to the Valuer-General’s office.

“The reason for the change has been communicated from the government as to allow assessments to become more consistent and fair,” explains Anthony Gibbs, financial controller at Kay & Burton.

In an article published in Domain in November, 2017, treasurer Tim Pallas expounded on the changes:

“Given that land tax is payable every year, it makes sense that valuations occur yearly as well… This will smooth out the process, making it fairer and more consistent, as well as cheaper for local councils who no longer need to conduct the valuations.”

The amount an investor owes is assessed on their land holdings as at January 1 of the previous year. This means that your land tax bill for 2019 will be a reflection of what your properties were determined to be worth on January 1, 2018.

How could these changes affect me and what can I do?

With land value being assessed more frequently, your 2019 land tax bill could increase. And although the new system was introduced to encourage a more equitable process, Gibbs says it may not always work that way.

In the long term this may be the case, however short term we have a situation where property values may have fallen between 10-30 per cent between the 1 January 2018 valuation and the land tax assessment being received in 2019, which in these cases would in fact make the system unfair.”

The good news, however, is that 2020 assessments should provide some relief, as they won’t be based on 1 January 2018 valuations (as they would have been under the previous biannual system) but a 1 January 2019 valuation instead.

If you disagree with an assessment, there are steps you can take. The state government has a Land Valuation Objection Form investors can fill out to dispute site and capital improved valuations, as well as a process for those who wish to challenge an assessment on a legal basis.

Land tax bills can also be higher than they should be if you’ve forgotten to update necessary details, such as land that you’ve sold. Get in touch with the State Revenue Office to rectify issues like these.

For those keen to reduce land tax payments, apartments are a wise investment, as units typically have cheaper rates than houses due to their smaller size and comparatively lower land value.

Investing interstate is another option. Although every state and territory in Australia has some version of land tax – with the exception of the Northern Territory – by investing more widely, such as by buying a single property in each state, you can lower costs by not exceeding each region’s respective land tax threshold.

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