TAS Land Tax - Is It Time For A Review?
Land tax is calculated on the land value of a property – if the land value of the property increases, then so does the tax.
Land Tax is a tax imposed on landowners by the State Government. It is a state-based tax. Some properties are exempt from paying this tax, including:
- a principal place of residence
- land used for primary production
- land owned by religious charitable and education institutions
Land tax is a passive tax - government does nothing for it, and the money raised goes into the “pot”. It is, in the parlance of Treasury, an “efficient tax”, which means it costs little to collect.
The land tax scales are well publicised. The tax is levied at the rate of 1.5c in the dollar above a land value of $350,000, and after an amount of $1837.50 has been levied. Below this threshold, a rate of 0.55% is charged.
Land tax is calculated on the land value of a property – if the land value of the property increases, then so does the tax. Property valuations occur in the municipality revaluation cycle approximately every 7/8 years, with a calculated adjustment being made in each of the intervening years.
It is a significant part of government revenues, being around 10% of all tax collected (9.47% to be precise). States need to show they are doing what they can to raise revenue in order to make their claim against GST funds, and land tax is an important component of that claim.
Land that is exempted from paying tax could also be a significant contributor. Treasury estimates the exemptions to be worth over $230m.
The following table was derived from Treasury Budget paper 1.
In reality, land tax is a tax that is imposed on commercial activity, as most commercial activity (other than primary production) occurs on land that is subject to the tax. And as such, it is related to what a tenant pays the landlord as a recoverable cost, or pays direct to government.
Residential property investors are also levied land tax and - as opposed to commercial landlords - have no means of recovery from tenants other than higher rents - a well publicised issue and a topic for another day.
Our point is this, that the tax cannot be seen in isolation from the commercial world, and in many cases where such charges are set, an increasing impost only damages the ability of the tenant or owner to pay the tax, directly through rental adjustments, or directly to the tax office.
In recent times, property values have increased significantly, and valuations have followed suit. In part, this has been driven by developer demand, and partly by an increasing interest in the property market generally. The rate of increase is already having an effect on a tenant’s ability to pay, with a result that defaults are rising.
In the “real world”, we are witnessing a continuing housing crisis, and it is now being reported that people in work are finding it difficult to meet the costs of living, which includes the cost of renting a property. In a market where demand and supply rule the day, added imposts make it that much more difficult to weather the storm.
And in the commercial world, the net profitability of the enterprise subject to the tax is also affected, particularly so where margins, contracts and prices are pre-set. Already many retailers are pulling the pin, and shops are idle.
These effects are not solely the result of land tax, but it is a contributing factor.
The City of Hobart will be confronting its next municipality revaluation cycle in the near future. If the land value of the municipality was to increase by say 20% is it reasonable for Treasury to benefit from a corresponding windfall of revenue growth of an “efficient tax” of 20% or should the scale be reviewed.
As can be seen from the table, there is much that can be said regarding one tax versus another tax, or whether the exemptions themselves need to be reviewed. However, we make this critical point to government that the rate of tax on land charged cannot be divorced from commercial reality, and the time has come to reconsider the thresholds and the rates controlling the tax take.