Is your land tax bill keeping you awake at night?

Between January and April this year, the State Revenue Office (SRO) will send close to 500,000 land tax assessment notices to owners of real property in Victoria.

While a property owner’s principal place of residence is generally exempt, land tax is payable on the total taxable value of all other land owned in Victoria, either individually or jointly with another person, where the value of that land is $250,000 or more ($25,000 if the land is held in a trust).

Following the meteoric rise in property prices enjoyed by investors this decade, it is no surprise that cooling investor demand, tighter lending restrictions and broader macroeconomic influences have contributed to the steady decline of property values throughout the state, especially within the metropolitan Melbourne area. According to the Valuer-General Victoria (VGV), the median house price in Victoria dropped by 4% in 2018, and many experts have predicted further decreases in 2019 and beyond.

Many land owners will be surprised to have received increased land tax assessments from the previous year, and will rightly question whether the increased tax really reflects the current state of the property market amid falling land values.

If you have received a land tax assessment which is higher than it should be, is significantly higher than in previous years, or if you consider that a new valuation applied to your property is higher than it should be, you have the option to formally object to the assessment and/or the valuation. Note however that you lose this right if you don’t object within the strict mandated timeframe.

A word of caution, however – even if an objection is made, land owners must still pay their assessed land tax on time, or face the prospect of being charged penalty interest. In the event that an objection is successful, the SRO will refund any overpaid amount together with interest.

About land tax

Where a land owner owns land in addition to their principal place of residence (there are also certain other limited exemptions), land tax applies to the cumulative total land value of the properties. For instance, if a land owner owns two separate properties each with a land value of $1.5 million, then assuming the title to the properties are held personally in the owner’s name, land tax will be payable on the total value of the property portfolio (i.e. $3 million).

This is significant as land tax is a progressive tax (much like income tax), with the land tax rate increasing as the total land value of a property investor’s portfolio increases.

Outside of acquisition costs and mortgage interest, land tax therefore represents perhaps one of the biggest holding costs for property investors.

Importantly, the land tax regime differs in each Australian state and territory, so land owners with properties in several states need to take care and obtain advice with respect to their tax obligations in each jurisdiction.

Land valuations

While the SRO is responsible for assessing a land owner’s liability to pay land tax on their properties, the amount of land tax payable is assessed on valuations generally conducted by the relevant local municipal council and approved by VGV.

Under a transition for centralising land valuations, the VGV will become the sole valuation authority to conduct annual valuations of all Victorian land for rating and taxing purposes.

Objections

Land owners can object to:

1. the land valuation on which a land tax assessment is based;
2. the legal basis on which the SRO assessed land tax; or
3. both.

When objecting to a land valuation, the relevant municipal council is responsible for considering the objection and must determine whether a valuation needs to be reassessed. While objections can lead to valuations being reduced, a valuation may also be increased upon review. Accordingly, it is important to ensure that an objection is well founded and, ideally, expert valuation advice is obtained prior to an objection being lodged. The period for land owners to lodge an objection to a land valuation is strictly two months from the date of the valuation being given.

When objecting to the legal basis on which the SRO has assessed land tax (e.g. because a particular exemption was not applied by the SRO), land owners may lodge a formal objection to the land tax assessment. The time limit for an objection to an SRO land tax assessment is 60 days from the date of the assessment.

Importantly, the time limits for objecting are strict. It is important to consider any objection as soon as you receive your assessment notice.