Victorians with multiple properties will bear the brunt of paying down the state's COVID debt after the state government announced significant land tax changes in last week's budget.
From 1 January 2024, the tax-free threshold for general land tax rates will temporarily decrease from $300,000 to $50, 000. The family home will remain exempt from land tax.
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 per cent for both general and trust taxpayers with holdings above $300 000 and $250 000 respectively.
The government estimates these changes, which will apply for a decade, will raise $4.7 billion to repay COVID debt over the next four years.
KR Peters Director Peter Nicolls is concerned about the extra burden these tax changes will place on investors now and into the future as property prices rise.
"This is a significant increase when you take into consideration that property values will increase over the next 10 years and therefore, so will the land tax liability," Mr Nicolls said.
"The budget will increase a landlord's land tax by $1,675 on a $1,000,000 land holding. The current land tax on $1,000,000 is $3,050 and will increase to $4,725."
The government expects 860,000 taxpayers will be affected, of which 380,000 will be first-time taxpayers.
Absentee property owners were also in the government's debt calculations with the surcharge set to rise from 2 per cent to 4 per cent.
Mr Nicolls fears the changes announced on May 23 will drive property investors out of the market as they look to make more profitable returns on the stock market or park their money in a bank account.
"So what I see is that landlords will sell their investment properties in droves taking the easy path of depositing their funds into fixed term deposits at a rate of 4.5% which will give them a return of $45,000 per annum without the stress of all the taxes and new government regulations which are adding thousands of dollars of additional expenses to the landlord," Mr Nicolls said.
"Unemployment will raise its head as the Victorian public service will shed up to 4,000 jobs up to and in the year ending June 2024.
"Small businesses are struggling to keep their heads above water as spiralling rents and costs of labour and products rise sharply.
"Commercial and industrial properties will see the abolishment of stamp duty be replaced with an annual property tax of 1 per cent of the property's unimproved land value." In the short term property owners will have a win, but long term they will pay more.
Mr Nicolls said the next decade would be a testing time to be a landlord in Victoria.
"There is no doubt the burden of this budget falls on those who own multiple properties. What impact it will have we will have to wait and see, but I suspect there are a lot of landlords in Victoria weighing up their next move and it could well be that they decide it is time to sell."