LAND TAX CHANGES IMPACT PROPERTY OWNERS
When the WA State Budget was released in May this year, it was no secret that the government was looking for ways to increase revenue in order to ease the budget shortfall caused by the mining downturn. One area that was targeted (and it’s not the first time) was the property industry, where land tax rates were increased for the third consecutive year. In fact according to the Property Council of Australia (PCA), since 2013 WA’s land tax rates have risen by over 50%.
While the changes for 2015-16 were announced back in May, it was not until recent weeks that the real impact of the adjusted rates has been realised. As land tax assessment notices have been posted out in October/ November, WA property owners are now finding out by exactly how much their land tax bills have increased.
Before we get in to some of the issues surrounding the recent increases, let’s look at how land tax is defined and who it applies to.
HOW IS LAND TAX APPLIED?
In basic terms, land tax is payable on the unimproved value of residential and commercial land in WA that is not the primary residence of the owner.
The 2015-16 rates apply to all property valued over $300,000, with a flat rate of $300 for land valued between $300,000 and $420,000, with progressive increases to rates above that value.
A table of the 2015-16 land tax rates is set out below:
As is evident in the comparison of the two tables, if you have property with an aggregated value of $421,000, your land tax bill in 2012/13 would have been approximately $108, while under the current rates you will be looking at a bill of over $300. Similarly, if you have property valued at $1M, your land tax in 2012/13 would have been about $630, while under current rates it will be $1,750. These figures don’t include the Metropolitan Region Improvement Tax (MRIT) which is applicable to properties in the metropolitan area, which, for an aggregated property value of $1M would bring your current land tax assessment to over $2,700.
It is important to note that land tax is calculated by aggregating the value of all properties owned by an individual. For example, if you own two properties valued at $250,000, the tax is calculated based on the aggregated value of $500,000. This means that while one property on its own valued at $250,000 would not attract land tax, the two combined do attract the tax.
The changes to land tax rates this year, are expected to earn the government a 25% increase in land tax revenue. The changes are likely to impact hardest on investors, small businesses and self-funded retirees who often have interest in property.
IMPACT ON THE CURRENT MARKET
The timing of the changes to land tax rates is a double blow given the downturn that the WA property market has been experiencing over the last 12-18 months. Short term demand has been reduced due to slow economic growth and lower population growth. Due to these conditions, dwelling values in Perth have experienced the biggest fall in the last quarter in 21 years that REIWA has been keeping records.
The fall in dwelling values along with increased rental vacancies and falling average rents, means that property owners are dealing with potentially lower yields on top of rising taxes.
Furthermore, the valuation of property for the purpose of land tax is calculated by the Valuer General for the whole of WA. The values are set at least 12 months prior to land tax assessments being sent to owners, with this year’s assessments based on valuations made as at 1 August 2014. This could mean that a valuation for a property which was made back in mid-2014, could be higher than its current value in this declining market.
TAX REFORM NEEDED
It is disappointing that the government seems to consider the property industry a soft target when it comes to tax increases when those costs are directly passed on to consumers. QWest Paterson has been calling for some time for a complete review of the property tax system, most significantly in terms of land tax and stamp duty rates which further exacerbate housing affordability issues and dampen demand during a time when the property and construction industries need to be supported.
For more detailed information regarding land tax assessments in WA, please seek advice from the Department of Finance website.