As you may already know, land tax is an increasing expense for an increasing number of Victorians. In a (relatively) low interest rate environment land tax consumes an increasing proportion of the rental income of an investment property or is just plain expensive for those who have a holiday home.
In the 2003/4 financial year, the Victorian Government collected approximately $750 million in land tax. This was projected to have increased to $6.1 billion in the 2024/5 state budget – 8 times the figure from 20 years earlier. This reflects increasing property values, no indexation of thresholds and a range of new surcharges for trusts, foreigners and others.
In a forthcoming series of articles, of which this is the first, I want to explore some land tax concessions that are available in specific circumstances. Hopefully, this will help to ensure that you don’t pay more land tax than you have to!
Principal Place of Residence (PPR) Exemption
As a general proposition, your principal place of residence is exempt from land tax. This may be limited where part of the premises is used for a business or is rented out. The property can remain exempt during temporary absences as long as you don’t establish a principal place of residence elsewhere.
However, if you rent the property out – it is hard to argue that the property remains your principal place of residence. Many homeowners have been caught out when they rent their property out because the State Revenue Office (which administers land tax) gets information from the Residential Bond Authority (which manages residential rental bonds). If a bond has been paid you are likely to get a letter inviting you to pay land tax – and possibly several years of arrears.
Some have taken to using Airbnb and the like (where there is no central record of bonds) in the hope that they can continue to claim the property as their principal place of residence whilst still earning rental-style income. I can’t recommend this practice and suspect it won’t be long before the SRO catches on…
Purchasing a New PPR
It may be that you purchase a new principal place of residence shortly before the end of the calendar year and don’t move in before midnight on 31 December. This would ordinarily mean that you would pay land tax on the new property despite the fact that you might intend to move in shortly after 1 January.
The Land Tax Act does provide an exemption for this circumstance. That is, if you own land that you are using as a principal place of residence and then buy a second property to move into you may be able to claim an exemption for both properties for that one year.
Selling Your old PPR
On the other hand, you may have moved into the new property by 31 December and therefore claimed the exemption for the new property. However, the old property may be on the market – but not yet sold.
Again, there is an exemption for this circumstance. You may be able to claim a PPR exemption for the old residence at the same time.
A Word of Caution
It is important to remember that the State Revenue Office is in the business of maximizing the revenue that it collects – not handing out concessions.
You will need to strictly comply with the requirements of the exemption and most likely will need to file a formal objection to the land tax assessment that arrives – within the relatively tight deadlines imposed by the State Revenue Office.
To give an example, we had one client who was denied the PPR concession. Whilst they ‘bought’ the property and moved into it – the client actually bought a leasehold title. Hence the concession was denied them.
In circumstances where you might have been hit with a land tax assessment of tens of thousands of dollars it is worth getting some advice to ensure that you get any concessions you might be entitled to.
At Lewis O’Brien & Associates we are happy to assist with your land tax queries. You can book an appointment with me at a low fixed fee with no further obligations by clicking here.
Lewis O’Brien
Your Preferred Property Lawyer