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Small rises in the tax thresholds combined with much higher land assessments will hit family investors hardest, according to tax specialists.
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‘Erratic’ valuation increases trigger huge leaps in NSW land tax
02 February 2023
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Large, “erratic” NSW land valuation increases combined with minimal threshold rises will double the tax many landholders pay this year and hit small family investors hardest, according to tax specialists.
Mazars indirect tax specialist Stephen Baxter said the land tax general and premium thresholds rose by 18 per cent last year but the NSW Valuer General was increasing valuations by as much as 100 per cent.
“The NSW Valuer General’s Mass Valuation System has led to some recent erratic valuation increases for properties falling within common classes or components,” said Mr Baxter.
“The large valuations have had the effect that, in many cases, a much higher proportion of the value of a property investor’s land holdings is now above the land tax thresholds and hence subject to tax, or taxed at a higher rate.”
The result of the large valuation increases could multiply the eventual tax assessments, he said.
“A landowner’s land tax assessment might rise between 2022 and 2023 from, say, $2,000 to $8,000 or from $66,000 to $110,000 even if an independent valuer might determine their land value has only increased by 18 to 20 per cent over the same period.”
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“In the past, the Valuer General has described these as a valuation catch up for previously undervalued properties to the correct values.”
Revenue NSW has set the general threshold at $969,000 for 2023, up from $822,000, while the premium rises from $5,026,000 to $5,925,000.
The general rate for 2023 is $100 plus 1.6 per cent of the land value above the general threshold, while the premium rate is $79,396 plus 2 per cent of the land value above the premium threshold.
According to the NSW government’s budget papers, it expects the land tax to recover up to $2.2 billion over the next four years.
The director in tax services at William Buck, Todd Want, said investors could experience land tax increases above 100 per cent this year and then continued high imposts for a further two or three years.
Mr Want said the tax was calculated on the average property value over three years and the experience of one client highlighted the problem.
“One client had a holiday home where the value of their property three years ago was $1.3 million, two years ago it was approximately $2 million, it now jumped up closer to $4 million,” he said.
“Land tax is calculated on the average of those three numbers, so the average land value at the moment is somewhere around $2.5 million.”
“If the property market stays the same as where it is at the moment then next year the value from three years ago rolls off, and they’ve got a new value at the average from the $2 million, $4 million, and if it stays, another $4 million.”
The figure would in that case rise to $3.3 million.
Mr Want said the system hurt small businesses and mum and dad investors with one or two properties more than those with a complete investment portfolio.
“If you had a property holding of tens of millions with the threshold of $969,000, you go, my land holdings are already worth $10 million in fact they went up to $20 million. Your proportionate increase in land values, and your proportionate increase in land tax is not going to be too dissimilar,” said Mr Want.
“But for the mum and dads or the smaller scale investors that have one or two properties and were hovering either under or only just over the threshold, now they’re well over the threshold and so they’re paying a lot more tax than what they would have because of how the formula works.”
From 1 January the government also reduced the discount available for payment of land tax within 30 days from 1.5 per cent to just 0.5 per cent.
According to the NSW government’s budget papers, the reduction would generate an additional $34 million in revenue in 2022–23, and over four years to 2025–26 it would generate an added $146 million.
Mr Want said lowering the discount could lead to investors who previously took advantage of it holding onto their money for as long as possible.
“The clients who have always sought to take advantage of that 1.5 per cent discount are not going to bother,” he said.
“Whereas for a lot of people it was clear that the 1.5 per cent saving on it, if they could afford to, they were better off to take the discount off the land tax bill and pay it out.”
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