Land Tax and Victorian Holding Costs
Understanding the unique Victorian taxes and charges that impact an investor's bottom line.
Your deposit is only part of it. Duty, legal fees and moving costs sit alongside it.
Victoria's Land Tax System
Land tax is an annual tax levied by the State Revenue Office Victoria on the total taxable value of all Victorian land you own, excluding your primary residence. The tax is calculated on the 'site value' of the land, which is determined by the Valuer-General and shown on your council rates notice. Unlike income tax, land tax is a progressive tax, meaning the rate increases as the total value of your land holdings grows. It is important to note that land tax is based on the ownership as of midnight on 31 December each year. You should check the SRO website for current thresholds and rates as these can change with state budgets.
Absentee Owner Surcharge
If you are an 'absentee owner', you may be required to pay an additional surcharge on top of the standard land tax. An absentee owner is generally someone who is not an Australian citizen or permanent resident, does not ordinarily reside in Australia, and was absent from Australia for a certain period in the previous calendar year. This surcharge also applies to foreign corporations and trusts. The surcharge can significantly increase the cost of holding Victorian property, so international investors must seek specialist advice and register their status with the State Revenue Office to avoid heavy penalties.
| Cost | Paid To | Basis |
|---|---|---|
| Council Rates | Local Council | Property Value |
| Water Rates | Water Authority | Service and Usage |
| Land Tax | State Revenue Office | Site Value |
| ESL | State Revenue Office | Fire Services Levy |
Council rates and water rates are significant ongoing expenses for Victorian landlords. Council rates fund local services like waste collection and road maintenance, and are typically based on the Capital Improved Value of the property. Water rates include both a fixed service charge and a variable usage charge. In Victoria, the landlord is responsible for the service charges, while the tenant is responsible for water usage charges, provided the property is separately metered. If the property is not separately metered, the landlord must pay for all water costs. Ensuring your property has its own meter is a simple way to protect your yield.
Vacant Residential Land Tax
Victoria also has a Vacant Residential Land Tax that applies to homes in specific middle and inner Melbourne councils that are vacant for more than six months in a calendar year. This tax is designed to encourage owners to make their properties available for rent. There are exemptions for holiday homes, properties used for work purposes, and homes undergoing renovation. If you plan to leave an investment property empty for an extended period, you must notify the SRO, or you could face significant back-taxes and interest charges if the vacancy is discovered later.
Tax Planning
Land tax is usually higher if you own properties in a trust compared to owning them in your individual name. Discuss the best ownership structure with your accountant.
The Fire Services Property Levy
All Victorian property owners pay the Fire Services Property Levy, which supports the state's fire services (CFA and FRV). This levy is collected by your local council through your rates notice. It consists of a fixed component and a variable component based on the Capital Improved Value of the property. While it is a relatively small cost compared to land tax or council rates, it is another mandatory holding cost that must be factored into your annual budget. Like other property-related taxes, the levy for an investment property is generally tax-deductible for federal income tax purposes.
The Threshold Jump
Holding costs can also include insurance premiums, which are essential for protecting your asset. For a Victorian landlord, this should include building insurance (unless covered by an Owners Corporation) and specific landlord insurance. Landlord insurance covers risks that standard building insurance does not, such as malicious damage by tenants, loss of rent if the tenant defaults, and legal liability for injuries that occur on the property. Given the legal landscape in Victoria, this protection is considered a vital cost of doing business as a property investor.
- Check your site value on your council rates notice
- Determine if you are liable for the Absentee Owner Surcharge
- Ensure your property is separately metered for water usage
- Budget for land tax increases as your portfolio grows
Quick knowledge check
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