#108: Understanding my land tax - Cash flow and diversification overview

The Property Trio

https://propertyplanning.com.au/propertyplannerbuyerprofessor/ In this week's Ep#108, Dave, Cate and Pete take you through: Market insights 1. Race to the finish - Vic stamp duty concession is over The Victorian stamp duty concession for properties purchased under $1million ended on the 30th of June. This produced some last-minute scrambling for those trying to get the 25% discount for established property and 50% discount for new property. In Victoria, many auctions were brought forward and offers submitted, as the concession has greatly improved borrowing power for many, particularly first home buyers. This initiative was offered shortly after Melbourne's long lock-downs in 2020 in an effort to stimulate the property market. Little did our bureaucrats know that our market didn't really need external stimulus. Low interest rates would have been more than enough. 2. Latest unemployment figures exceeds expectations The ABS has recorded a drop in unemployment from 5.5% in April to 5.1% in May. Thankfully, Australia is one of only two nations that has more people employed now, than prior to when covid took hold. The lowest unemployment level reached in the last decade is 4.9% and we're not far away! Interestingly, despite Victoria's extended lockdowns, the unemployment rate in Victoria is 4.8%, while NSW sits at 5%. South Australia has the highest unemployment rate at 5.8% and ACT, the lowest rate at 3.6%. No surprises here, as the public service is less affected by downturns. The trio discuss the reasons behind the stellar unemployment result. Land tax 1. Land tax basics Land tax is an annual cost that is determined on the total value of the land you own, (with the exception of a principle place of residence). Unlike Capital Gains Tax, Land Tax is a state tax, with differing thresholds, tiers, rates and methods of calculation between each state. Another layer of complexity are the differing rates and thresholds for owning property in trusts or in a company. As you acquire property, you need to be mindful of your ever-growing land tax bill, and this is often not factored into cash flow costs when people make property decisions. The trio also discuss and explain how land values are calculated for tax purposes. 2. Tax on unimproved value Each year the Valuer-General evaluates the 'unimproved value' of the property, meaning the land portion without the dwelling. Funnily enough, the only time you want a conservative estimate of value is on your land tax bill and council rates notice. If you disagree with an estimate, you normally have 30 to 90 days to challenge it, and if found in your favour, this could save you thousands of dollars. More often than not, the value that the government apportions for your land is not what the market would give you. Where this will hurt, is in a falling market. Although you're more likely to be eligible for a re-assessment in this case. 3. The friendliest land tax states The trio outline the differences in land tax for each state. Which states have the lowest tax-free threshold? And which states offer the friendliest environment for building a property portfolio. Before you purchase your next property, you should be broadly aware of the land value component, and you should try to determine many properties you will accumulate over your life-time in each state. Having a plan that factors in land tax, helps an investor provision for cash flow obligations. 4. Tax decisions drive investment choices Political, financial and economic discussion is often centred around tax and it's implications. States may...