Saturday 2 February 2008

Land Tax 2008

This year's land tax assessment just arrived from the Office of State Revenue. I can either pay $1,401.30 by 10th March (a $21.35 "discount"), or three installments of $474.20 due in March, April and May. I'll probably just pay in one lump sum since I have the cash on hand and the discount is probably about the same as the after-tax value of any interest I'd earn on $948.40 for an extra one and a half months. Fortunately they don't charge a fee for paying via credit card, so I can charge the amount to my CC and earn reward points worth about 0.5% of the transaction amount. That way I'll also get another month before I have to pay off the amount via the CC bill.

The state government keeps changing the rules relating to the calculation of land tax, making it impossible to budget or plan for this tax. For example, our past bills (with no change in the properties we own and pay land tax on) have been:

Year Tax Due Taxable Exempt * Tax Rate
Land Value Land Value Formula
2001 $695.00 $240,000.00 not provided $100 + 1.7c per $1 over $205,000 threshold
2002 $848.00 $264,000.00 not provided $100 + 1.7c per $1 over $220,000 threshold
2003 $814.00 $303,000.00 not provided $100 + 1.7c per $1 over $261,000 threshold
2004 $372.00 $333,000.00 not provided $100 + 1.7c per $1 over $317,000 threshold
2005 $1,332.00 $333,000.00 not provided 0.4c per $1 up to $400K, 0.6c per $1 on next $100K, 1.4c per $1 above $500K
2006 $0.00 $349,000.00 not provided $100 + 1.7c per $1 over $352,000 threshold
2007 $451.30 $372,667.00 $407,000.00 $100 + 1.7c per $1 over $353,000 threshold
2008 $1,401.30 $441,667.00 $407,000.00 $100 + 1.7c per $1 over $359,000 threshold

* Land used for principal place of residence (ie. our home) is tax exempt

Apart from a short lived attempt to remove the tax threshold (which was repealed after one year due to all the "small" landholders who just had a tiny tax bill due on the land associated with a investment apartment), the rate has been fairly constant but the thresholds were adjusted based on average state property values, whereas land values in Sydney tend to change more erratically, and outpace the threshold increase over time.

The government reintroduced the old tax rates and threshold for 2006, but didn't index the threshold in 2006, which has brought our one investment property back over the threshold. The threshold also hasn't increased much in 2007 or 2008, while the valuation of our investment property land value has increased by more than 30%. Because our land value was just under the threshold amount in 2006 this has meant a massive increase in the amount of land tax assessed in the past two years.

Due to sudden jumps in land valuations under the old method of reviewing land values every 3-4 years, a new method was introduced wo years ago that provides a valuation each year, and averages the past three years valuations to smooth out any tax increases.

Last year's calculation:

Year Taxable Property
2005 $333,000.00
2006 $349,000.00
2007 $436,000.00
Avg: $372,667.00

This year's calculation:

Year Taxable Property
2006 $349,000.00
2007 $436,000.00
2008 $540.000.00
Avg: $441,667.00

Est of next year's calculation:

Year Taxable Property
2007 $436,000.00
2008 $540.000.00
2009 $640.000.00
Avg: $538,667.00

At least this allows me to make a rough guess of what the land tax bill will be for the next year, assuming
a) rates stay same and threshold goes up 5%pa to $377,000.00
b) land valuation goes up a similar amount this year as last year

My land tax estimate for 2009 is therefore $2,363. It would be nice if the threshold increased in line with Sydney property prices, but I'm not holding my breath. At least property tax is tax deductible against our rental income from the property.

Copyright Enough Wealth 2007

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