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Changes to Victorian property taxes

When it comes to property and taxes, change is the only certainty.  There are a few major changes coming your way that relate to property in Victoria.  These changes impact both owner occupiers and property investors and therefore you should take a closer look.

It is clear from these changes that the government wants to raise additional tax revenue from property investors, and hand it to first home buyers, as a way of aiding the problem of home ownership for first home buyers.

The major changes in a nutshell are as follows:

  1. Stamp duty abolished for First Home Buyers and FHOG doubled for Regional Victoria
  2. Property transfers between spouses and de facto partners will no longer be exempt from stamp duty
  3. A tax will apply for vacant residential properties (in certain municipalities)
  4. Land tax to be revalued annually

Let’s take a closer look at the changes…

First Home Buyers Stamp Duty abolished & FHOG doubled in Regional Victoria:

Effective 1 July 2017, stamp duty will be abolished for first home buyers (FHBs) for home purchases of up to $600,000.  That’s a $31,000 saving in stamp duty when compared to buyers that are not FHBs.

Properties purchased between $600,001 and $750,000 will receive a significant stamp duty reduction applied on a sliding scale.

Also effective 1 July 2017, the current First Home Owner Grant (FHOG) of $10,000 will be doubled to $20,000 for eligible first-home buyers who buy or build their new home in Regional Victoria (up to $750,000 value).

Source: State Revenue Office Victoria website

Property Transfers between spouses and de facto partners:

Effective 1 July 2017, transfers between partners will no longer be exempt from stamp duty. Exemptions will still apply for principal places of residence (PPOR) transfers and for transfer of properties following a relationship breakdown.

“The idea of the transfer of investment properties between spouses is seeking to do pretty much one thing and that’s to avoid liability to taxation” Mr Pallas said.

Source: The Australian 29 April 2017

This strategy was used by many clients at a point when asset ownership shifted from one spouse (or de facto partner) to the other, resulting in higher gearing against an investment property.  This strategy was attractive as no stamp duty was payable due to “love and affection” transfers.  Now that stamp duty has to be paid on such transfers, it may take away the shine from such a strategy.

A tax for vacant residential property:

From 1 January 2018, a tax will apply for vacant residential property.   The vacant residential property tax will be a 1% annual tax on the capital improved value (CIV) of the taxable property.  The CIV can be found on your council rates notices.

Properties will be considered vacant if they are left unoccupied for six months or more in a calendar year.  Note the six months do not need to be continuous. The vacant residential property tax (VRPT) only applies to vacant residential properties located in the following local council areas: Banyule, Bayside, Boroondara, Darebin, Glen Eira, Hobsons Bay, Manningham, Maribyrnong, Melbourne, Monash, Moonee Valley, Moreland, Port Phillip, Stonnington, Whitehorse, and Yarra.

The vacant residential property tax will not apply to holiday homes, city units used for work purposes, properties in deceased estates and homes subject to genuine temporary absences such as for medical reasons or for those who are temporarily overseas.

The vacant residential property tax will be self-reporting, this means owners of vacant residential property will be required to notify the State Revenue Office (SRO) when they meet the requirements of the vacant residential property tax.  However the SRO will observe to ensure that vacant residential properties are being declared and it can also be monitored by utility usage.

Source: State Revenue Office Victoria website

Land Tax to be revalued annually:

From 2019, land tax will be revalued annually instead of biannually.

If you own property in Victoria, paying land tax depends on what land you own, what it is used for, and its total value. As it stands currently, you are liable for land tax if the taxable value of your land holdings exceeds $250,000.  Your PPOR is exempt from your land holdings.

Land tax is currently assessed on your land holdings as at midnight on December 31 of the previous year.  Currently, the value of your land holdings, which land tax is assessed on, is updated biannually (i.e. every two years) and is calculated on the CIV as per your rates notice.

As of 2019, land tax will be revalued annually instead of biannually.  In other words, a higher amount of land tax will most likely apply given the ongoing strength of the Melbourne property market.

Source: The Australian 29 April 2017
Current land tax: State Revenue Office Victoria website

The Victorian government says “…the aim of these changes are to shift some of the balance back to first home buyers”.

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