Are you overpaying land tax based on out of date council valuations?
The 2019-2020 Victorian State Budget reported that land tax revenue in 2019-2020 is expected to increase to $3.7 billion. This is a significant increase from the $1.2 billion raised in 2009-2010.
It is normal that higher land values will lead to higher land tax, but, given the recent volatility in the Australian property market, property owners, particularly property developers, commercial landlords (especially if the Retail Leases Act 2003 (Vic) (RLA) applies) and commercial site owners, should review how their land tax is being assessed. Potential site purchasers or a tenant (paying land tax under a non – RLA lease) may also consider reviewing how land tax is being assessed for the relevant site they have an interest in. A significant land tax assessment will affect the commercial feasibility of a site and may deter future tenants or purchasers.
How land tax is assessed
In Victoria, State Revenue Office (SRO) land tax assessments are generally:
- based on the site value of a property owner’s land holdings, which is the unimproved value of land, excluding capital improvements such as buildings;
- payable only if the total taxable site value of all Victorian landholding by the property owner, individually or jointly, equals or exceeds $250,000 ($25,000 for trusts);
- assessed on a calendar year basis, in respect of land owned at midnight on 31 December immediately preceding the tax year. For example, as at the date of this article, the value of land held by a land owner at midnight on 31 December 2019 will be used to calculate land tax for the 2020 land tax year; and
- imposed progressively with a top rate of 2.25% imposed on land holdings with a total taxable value of $3 million or more. In addition to the general rates, surcharge rates may also apply (for example, where the land is held by a trust or an absentee owner surcharge).
Land valuations for land tax
The ‘site value’ has generally been determined by local councils during their assessment of council rates.
Pre – 2018, property valuations occurred every two years. A valuation would not be problematic in a stable property market. However, overpayment of land tax arose if a land tax assessment was based on the site value at the peak of the property market.
For example, an investor with a property portfolio comprising $4.5 million in land holdings may be liable for an estimated land tax of $58,725 but if the SRO relies on an out of date council valuation that does not take into account a 15% decrease in the property market, the investor will be overpaying land tax by around $15,188.
When annual council rates are issued around August, property owners should pay attention to the valuations on which those rates are levied.
With effect from 1 July 2018, valuations are conducted annually by the Valuer-General as the sole valuation authority for the purpose of council rates, land tax and the Fire Services Property Levy. This approach has been implemented to ensure that property values are more up-to-date, such that taxpayers’ land tax bills accurately reflect the value of their land holdings.
However, councils will have the opportunity to opt out of the centralisation arrangement until 30 June 2022 to assist in the transition of the new arrangements. Given this opt out mechanism, property owners should pay careful attention to the property values upon which their land tax assessments are based.
When property owners receive their land tax assessment for the 2020 land tax year, it will be critical to check that the valuation correctly reflects property values of the land owned as at midnight on 31 December 2019. Remember, this is the legislated date upon which land tax must be levied. If your assessment is based on values from the preceding year, you may wish to consider objecting to your assessment.
Objecting to land tax assessments
If a property owner does not agree with the site or capital improved valuations as set out in their land tax assessment, they may object to those valuations within two months of receiving the relevant assessment.
Land owners can also object to the legal basis upon which the SRO has assessed them for land tax. For instance, a property owner may consider an exemption or concession applies. In this case, the objection must be lodged with the SRO within 60 days of receipt of the assessment.
The time limit for lodging an objection is strictly enforced; accordingly, land owners should decide if they wish to object when they receive an assessment.
How can Rigby Cooke help?
Rigby Cooke’s Tax and Wealth and Property teams can assist in:
- reviewing and advising if a land tax valuation may be appropriate;
- objecting to a land tax assessment;
- considering whether an exemption or concession applies to the relevant land and, if applicable, submitting an application for the exemption or concession on your behalf; or
- applying for remissions of any penalties imposed due to failure to notify the SRO that you are an absentee owner.
If you would like advice or assistance on any of the above, please contact either a member of our Tax or Property teams.