24/05/2023
Victorian State Budget - The new Apartment Land Tax
The lowering of the land tax threshold from $300,000 to $50,000 in yesterday's Victoria State Budget should be seen primarily as a new Apartment Land Tax impacting investors with single apartments as investment properties.
Over recent decades Victoria has seen growth in apartment and unit development with multiple dwellings replacing single dwellings on the traditional quarter acre block.
This change in style of living was borne out of necessity, change in lifestyle and promoted by government policy. It also meant that the underlying land value of individual properties reduced as the land occupied became smaller.
Investors were also encouraged to purchase apartments due in part to government endorsed stamp duty savings, depreciation benefits, rental returns and importantly no land tax as traditionally investor style one and two bedroom apartments had land values less than the tax threshold of $300,000.
Case in point a one bedroom apartment in Melbourne CBD, within a serviced apartment development, and which has a value of $330,000 has an underlying land value of $95,000. Prior to yesterday this property would not be subject to land tax. As of 2024 land tax of $500 will be payable.
The impact of this decision will have financial impact not only on small investors who own single apartments in Victoria but also those who rent apartments from them through increased pressure to increase rentals by $10 per week for those apartments with land values of less than $100,000 and by $20 plus per week for those with land values over $100,000.
This land tax decision is now essentially the introduction of a new Apartment Land Tax and the impact of such only time will tell.
