AUSTRALIA – April 2019 · CASH-STRAPPED COUNCILS BLAME NSW GOVERNMENT FOR PROPOSED RATE HIKE ... limit negative gearing to new housing and halve the capital gains tax concession

International Property Tax Institute

IPTI Xtracts- The items included in IPTI Xtracts have been extracted from published information. IPTI accepts no responsibility for the accuracy of the information or any opinions expressed in the articles.

AUSTRALIA – April 2019

Contents

GOVERNMENTS RACK UP $30BN IN PROPERTY TAX ‘SUGAR HIT’ .......................................................................... 1

PROPERTY PRICES: SYDNEY AND MELBOURNE FACING STEEPEST DECLINES IN TWO DECADES ............................. 2

CASH-STRAPPED COUNCILS BLAME NSW GOVERNMENT FOR PROPOSED RATE HIKE ............................................ 4

“BEWARE OF LAND TAX!”: PROPERTY OWNERS FACE STEEP TAX INCREASES ........................................................ 6

PROSPER’S NORTHERN TERRITORY REVENUE SUBMISSION ................................................................................... 7

QUEENSLAND LANDOWNERS SHOULD ACT NOW TO REVIEW THEIR LAND TAX LIABILITY ..................................... 9

AVERAGE VICTORIA RESIDENTIAL PROPERTY TAX HIKE: $97 ................................................................................ 10

LAND TAX DEBATE BACK ON AS PROPERTY SLUMP HITS STATES’ STAMP DUTY REVENUES ................................. 11

ACT GOVERNMENT WORKS TO RE-DESIGN 'CONFUSING' RATES ASSESSMENT NOTICES ..................................... 12

CANBERRA'S TAX REFORM EXPOSED HUGE FLAW IN SYSTEM ............................................................................. 13

COMMITTEE CALLS FOR REVIEW OF ‘FLAWED’ COMMERCIAL RATES SYSTEM ..................................................... 14

NEW WAY FOR LANDLORDS TO SKIP LAND TAX. BUT IT COMES AT A REAL COST ................................................ 16

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Governments rack up $30bn in property tax ‘sugar hit’

A 6 per cent rise in property tax revenue collected by state and local governments has prompted calls for a revision of taxation policy to improve housing affordability. According to the latest data from the Australian Bureau of Statistics (ABS), state and local governments collected $30.3 billion in property taxes over the 2017-18 financial year, up 6 per cent from $28.6 billion in the previous financial year and increase of $9 billion over the past five years. The data revealed that property taxation made up 14 per cent of state government revenue over the 2017-18 financial year and was the sole source of revenue for local governments. Reflecting on the figures, Property Council of Australia CEO Ken Morrison called for a revision of taxation arrangements in order to reduce housing affordability constraints. “Property taxes such as stamp duty are inefficient and make housing much less affordable,” he said. “They can account for anywhere up to one-quarter of the cost of a property purchase in our major cities.

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“Property taxes are a sugar hit for state and local government when markets are booming, but they can also eat into budget bottom lines when the markets cool, as we’re now seeing in Melbourne and Sydney.” Mr Morrison added: “We need a roadmap for reform in the medium term that focuses on taxes [that] are productive, competitive and sustainable.” The ABS data comes amid strong criticism of the federal Labor opposition’s cap housing policies, which include a proposal to limit negative gearing to new housing and halve the capital gains tax concession from 30 per cent to 15 per cent. Property industry stakeholders have expressed concern over the impact of such changes to the housing market amid continued weakness in demand and falling dwelling values. Labor’s policy modelling has also been questioned by stakeholders, with chairman of the Property Investors Council of Australia Ben Kingsley casting doubt over the accuracy of the data. The opposition recently announced that if elected to government, its taxation changes would come into effect in January 2020.

Property prices: Sydney and Melbourne facing steepest declines in two decades

Sydney’s property downturn will be the sharpest in more than two decades, with median house prices expected to dip below $1 million in the coming quarter. This is the according to the Domain House Price Report for the March quarter, which revealed Sydney house prices have fallen 14.3 per cent from the mid-2017 peak. The report also detailed Melbourne’s lowest quarterly moderation since June last year and stalling house prices in Brisbane following six years of continuous annual growth. Perth and Canberra both saw house prices go down, with the nation’s capital suffering the steepest annual fall in a decade, while Adelaide and Hobart were the only two capital cities to buck the national downward trend. SYDNEY House prices fell 3.1 per cent over the quarter and 11.5 per cent over the year to $1,027,962. Unit prices fell 2.0 per cent over the quarter and 6.5 per cent over the year to $696,935. Domain Senior Research Analyst Dr Nicola Powell said results show house prices in Sydney are set to dip below $1 million dollar in the next three months, with unit prices also suffering a decline. “Sydney’s current property downturn is the sharpest in more than two decades. It is yet to surpass the duration of the 2004-06 slump but it is coming close to being the longest,” she said. “If the pace of quarterly decline remains, prices are likely to dip below $1 million in the coming quarter. A six-figure median house price has not been recorded in four years.” Ms Powell said house prices are 30.2 per cent higher than five years ago and unit prices 20.7 per cent higher, providing many homeowners with substantial equity gain. “Sydney remains a buyers’ market, although the year has started in a better place than last year ended. Despite lower auction volumes, clearance rates have risen from near historic lows. Domain also recorded a lift in number of views per listing over the first three months of the year - signalling renewed buyer interest,” she said. “The volume of current listings remains elevated but new listings are shrinking. The fall in new listings is not suggestive of buyers ‘fear of not getting out.’ It paints a picture of Sydney homeowners holding tight, only selling if they have to.”

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MELBOURNE House prices fell 2.4 per cent over the quarter and 10.4 per cent over the year to $809,468. Unit prices fell 2.9 per cent over the quarter and 8.3 per cent over the year to $466,892. Melbourne is also facing its steepest downturn in more than two decades with house prices have falling for five consecutive quarters – currently down 11 per cent from the peak reached at the end of 2017. Unit prices have also deteriorated for four consecutive quarters. “The upper end of the property market continues to feel the brunt of the downturn but weakness is now being recorded at the lower end,” Dr Powell said. “An influx of first-home buyer activity, affordability constraints and a targeted approach by the banks to reduce exposure to high debt-to-income borrowers supported entry-level demand.” BRISBANE House prices fell 1.1 per cent over the quarter and 0.3 per cent over the year to $563,666. Unit prices fell 3.7 per cent over the quarter and 5.2 per cent over the year to $372,852. Six years of continuous annual growth have come to an end, with Brisbane house prices coming to a standstill. Ms Powell said while homeowners may not be reaping equity gain, flat house prices made Brisbane more appealing than other capital cities. “The housing market remains fragmented with houses outperforming units. This has been a trend since mid-2012. Unit prices are 9.6 per cent below the mid-2016 peak, with buyers now able to reap the benefits of purchasing at 2013 prices,” Dr Powell said. “There is growing interest in Queensland. It is the third most popular destination for overseas migrants and is drawing the highest number of interstate movers. Dr Powell added growing job prospects in the Sunshine State provided the strong underlying demand for housing from both investors and owner-occupiers. ADELAIDE House prices remained flat over the quarter and grew 2.0 per cent over the year to $542,474. Unit prices fell 2.1 per cent over the quarter and 1.3 per cent over the year to $312,459. Adelaide is now the third most affordable city to purchase a house, surpassing Perth’s median house price for the first time since 1993. Unit prices also remain the most affordable of all capital cities. “The sustainable pace of annual growth has slowed to a five-and-a-half year low. This weakness provides further evidence that credit access is having an impact on markets that would otherwise have steady growth,” she said. “As the two biggest housing markets soften, investor interest has migrated to other locations that offer affordability and steady capital gains.” CANBERRA House prices fell 0.9 per cent over the quarter and 2 per cent over the year at $722,440. Unit prices fell 3.2 per cent over the quarter and 1.7 per cent over the year to $426,719.

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Canberra's housing market has shown the first signs of price weakness since 2012, with house prices suffering the steepest annual fall in a decade. “Historically, any pullback in house prices tend to be short and relatively minor, apart from the 1995-97 downturn. Current market conditions are likely to be the same, a short period of softening rather than the correction currently unravelling in Sydney and Melbourne.” “Unit prices continue to slide over the quarter and year, with the market failing to produce a steady period of price growth since 2009-10. The outlook for apartment prices has been mixed, providing only subdued capital growth over the past five years, up by 4.5 per cent.” PERTH House prices declined 2.5 per cent over the quarter and 5.2 per cent over the year to $529,997. Unit prices fell 1.1 per cent over the quarter and 5.6 per cent over the year to $347,596. Encouraging signs of a recovery in Perth’s housing market have come undone after house and unit price falls gathered pace. “House prices are now 14 per cent and unit prices 16.6 per cent below the 2014 peak,” she said. “Buyers continue to have the upper hand. Improved affordability is providing the ultimate silver lining for prospective homeowners, allowing a purchase to be made at 2011 prices. “Perth’s recovery is being hindered by a more restrictive lending environment at a time when local confidence is subdued under weak economic conditions.” HOBART House prices grew 3.1 per cent over the quarter and 7 per cent over the year to $478,247. Unit prices grew 2.6 per cent over the quarter and 8.4 per cent over the year to $363,418. Hobart remains the best performing city for capital growth and the only city to record growth over the quarter and year for both houses and units. However, homeowners have still witnessed the lowest annual growth since mid-2016. “In the space of a year-and-a-half, Hobart has gone from the most affordable city to purchase a unit, to more expensive than Adelaide, Darwin and Perth. If the pace of growth continues, Hobart unit prices are likely to overtake Brisbane’s in the coming months,” she said. DARWIN House prices fell 0.1 per cent over the quarter and grew 1.5 per cent over the year to $514,546. Unit prices fell 2.6 per cent over the quarter and 1.7 per cent over the year to $313,462. House and unit prices continue to be impacted from the weak economic conditions that have ensued post the mining boom. “A recovery in Darwin’s housing market largely hinges on the government’s attempts at boosting the population, jobs growth and an improvement in the availability of housing credit,” she said. Cash-strapped councils blame NSW government for proposed rate hikes

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Councils across NSW are seeking to raise rates by up to 15 per cent a year, well in excess of the 2.7 per cent maximum increase permitted by the pricing regulator. Burwood, Hunters Hill, Ku-ring-gai, North Sydney, Randwick and Sutherland Shire councils have all applied to the Independent Pricing and Regulatory Tribunal for a special variation to raise rates beyond the rate peg set by the tribunal. The councils argue additional funds are needed to pay for roads, drains and playgrounds or improve financial stability. They say the NSW government is starving local government of money while shifting the cost of infrastructure to cash-strapped councils. IPART will decide in May whether to approve applications to increase council rates beyond the peg based on criteria such as financial need and the community’s capacity and willingness to pay. North Sydney Council has warned ratepayers that playgrounds would only be upgraded once every 48 years if it is not permitted to increase rates by 7 per cent for the next five years. "Chances of any playground within North Sydney remaining as an effective, valuable and safe play space for 48 years is 0 per cent," according to Robert Emerson, the council’s director of open space and environmental services. Sutherland Shire is seeking an 8.8 per cent single-year increase on minimum rates up to $900 in an effort to reduce the gap between council charges paid by apartment owners and homeowners. The council’s application to IPART said an increase in residential developments had placed "significant strain" on existing infrastructure. "Whilst they do provide some additional rate income, the majority of these developments are being levied the current minimum rate of $602 per annum, which does not represent the cost of the additional services and facilities required by the increased population," a council spokeswoman said. Randwick City Council is seeking a five-year extension of an environmental levy, costing an average of $91 a year, even though its ratepayers are already paying almost 20 per cent higher rates over three years to pay for anti-terrorism measures, upgrading a museum at La Perouse and new sports facilities. Seven rural councils including Kiama, Port Stephens and Tamworth have also applied to increase rates beyond the rate peg. Muswellbrook Shire is seeking a 15 per cent rate rise to fund infrastructure projects. Dungog Shire has asked to raise rates by 97 per cent over seven years - the council's IPART application notes it is "significantly struggling with asset management, compliance and legislative obligations". An IPART spokeswoman said the peg for council rates - set at 2.7 per cent for the next financial year - reflected higher costs for labour, energy and the construction of roads, drains, footpaths and bridges. "Councils have discretion to increase general income up to the rate peg, by less than the rate peg or not at all, and they also decide how to allocate the rate peg increase between different ratepayer categories," she said. There is little public support for the rate rises councils are seeking. Three North Sydney councillors - Zoe Baker, MaryAnn Beregi and Tony Carr - accused their council of wasting ratepayer funds, failing to explore alternative to raising rates and "misleading" the tribunal about public support for the rate rise. "Over the past 12 months, Council has not demonstrated efficient or careful use of Council resources," the councillors wrote in their submission to IPART. The councillors also initiated an online petition, which has gathered more than 200 signatures, opposing North Sydney's proposed rate hike. In contrast, North Sydney mayor Jilly Gibson said: "North Sydney has one of the highest household incomes of any [local government area] in Sydney while rates are among the lowest."

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Average residential rates in NSW were $1057 a year in 2016-17, according to the Office of Local Government - compared to $1864 in Victoria. But residential rates in Hunters Hill averaged $1743.19 in 2016-17, $1456.63 in the Blue Mountains, $1406.92 in Lithgow, $1325.83 in Ku-ring-gai and $1204.48 in Randwick. In contrast, ratepayers in the City of Sydney paid an average of $633.79, while those in North Sydney paid $751.17 - their far cheaper council rates are subsidised by business ratepayers. "The rate-pegging system protects households and property owners from excessive rate rises, yet allows councils to deliver the services and infrastructure communities expect," an OLG spokesman said. But it is strongly criticised by councils such as North Sydney and Lithgow, which is seeking an 11.7 per cent increase in rates. Graeme Faulkner, the council’s general manager, said the financial sustainability of councils were "significantly impacted" by cost shifting from other levels of government. "Along with rate capping, cost shifting undermines the financial sustainability of the local government sector by forcing councils to assume responsibility for more infrastructure and services, without sufficient corresponding revenue," he said. A North Sydney Council spokeswoman also criticised the rate peg, which she said adversely affected councils with a high proportion of apartments. "Capping rates based on past expenditure does not take into consideration ageing infrastructure and the need for significant additional expenditure as this infrastructure approaches the end of its useful life," she said. She said councils are responsible for one-third of public infrastructure, including 75 per cent of roads, yet raise only 3.6 per cent of tax revenue. Council services will be cut if North Sydney’s proposed rate rise is not approved by IPART, she said. "Cutbacks would include services such as street cleaning, graffiti removal, tree planting, events, economic development, grants to community groups and centres and library opening hours."

“Beware of land tax!”: Property owners face steep tax increases

Businessman Ingo Reisch has a warning for fellow property investors: "Beware of land tax!" A bull run in Melbourne's commercial real estate values over the last five years has caused a sharp rise in land tax assessments arriving in landlords and property owners' mailboxes, rattling many investors. Along with stamp duty, land tax is one of the Victorian treasury's biggest revenue sources, expected to contribute $3.1 billion to government coffers this financial year. But the tax rates are calculated using extremely low value thresholds, last reviewed in 2009, which industry professionals maintain are severely out of kilter with current high property values. Few property owners are willing to share their experiences on the record because of financial sensitivities. A government spokesperson said: "We're making land valuations fairer and more consistent across the state. "Annual valuations will bring Victoria in line with the rest of the country so they are more up-to-date and accurate." "I have one client," says a commercial law partner at a big city legal firm (he was unwilling to be identified because of the firm's government work), "who owns a retail shop in Elizabeth Street.

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"Two years ago in 2016 their land tax was $10,000. It was revalued and then went up to $50,000 for the last two years. In the current round, it's gone up to $107,000. "It's all being caused by bracket creep. There has been no amendment to the scales and trigger points since 2009 ... [and it is] creating capricious and unconscionable outcomes." Mr Reisch, a German migrant who arrived in Australia 30 years ago with $2000 in his pocket, says his situation is similar. "I started as a beekeeper and moved from bees to hospitality to new-car franchises," he said. "I built the largest BMW/MINI privately owned franchise in Australia over a 25-year period, employed well over 200 staff at two locations and was official importer of Alpina BMW cars and paid a lot of taxes on the way, and still do." After he and his investment partners sold the dealership business they kept key rental properties which are now in a property trust managed by Mr Reisch. One property is in Commercial Road, South Yarra. It has a seven-year lease to a Volkswagen dealership with annual rental increases fixed to the consumer price index, around 2 per cent. Land tax on the property was initially around $50,000, it moved to $120,000 three years ago, and then just under $200,000 last year. This year it topped $350,000 which represents half of the property's rental income. Most of the rise was attributable to a steep hike in valuations based on "highest and best use" of the land, sparked by a recent apartment-friendly rezoning in the area and rising commercial values. "There is a concern that this trend will continue and we could be in minus by the end of the lease term or even sooner," he said. Mr Reisch acknowledges he is lucky, he still has a profit (on which he pays 30 per cent company tax). Many self-funded retirees will be out of pocket on smaller property investments, such as high street shops, if they experience similar tax increases. Investors were failing to factor in the potential for a steep rise in land tax when calculating the yield return of the property they were purchasing, he said. Landlords in Victoria cannot pass on land tax costs to tenants unless they are publicly listed companies. "Everyone needs to pay taxes. It just needs to be fair," said Mr Reisch. "You ask yourself, 'Why invest in a rental property which employs 45 people when the return is being gobbled up by out-of-control land tax?'." Daren McDonald, a partner with accounting consultants Shinewing, said property owners' yields and returns were under assault. A cap on land taxincreases or some form of indexing was needed to ensure it didn't get out of control. "Some of these people won't be able to afford to keep the properties they own," he said.

Prosper’s Northern Territory Revenue Submission

The Northern Territory Government’s Revenue Discussion paper submissions have come to a close. Prosper’s Submission focuses on supporting the NT Government in shifting towards a broad based Land Value Tax and further improving existing Royalty arrangements. The submission is briefly summarised below. Facilitate the shift from Stamp Duty to Land Tax Stamp duties

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The NT Government should phase out non-property related taxes (e.g. Insurance duties) and then stamp duties on capital equipment and Real estate. These should be replaced with a broad based land tax. Additionally First home owner grants and stamp duty discounts should be eliminated due to these feeding into higher prices. How to implement land tax Land tax should be levied on the unimproved value of land, so that improvements are not penalised. The transition from stamp duties can be managed by either the credit of prior stamp duties paid against future land tax payments, or by the sale of securities. Tax rates should ideally be as flat and avoid thresholds. If progressive rates are levied, they should be done on the per m2 land value of individual sites, not an owner’s aggregate holdings. Minimum rates should not be imposed. Valuations should be undertaken annually. Land tax salience can be potentially reduced via local government collection, deferrals, and tax escrow. Principle place of residence exemptions (investor only land tax) Where PPR exemptions are considered necessary, land taxes should still be considered given PPR exemptions do not make land tax inherently inferior to alternative tax options. Windfall Rezoning Gains (Betterment) taxes The ACT’s “Lease Variation Charge” should be adopted to capture the windfall gains due to property zoning and development. Mining and Petroleum Royalties Mining royalties rates should be raised from 20% up to 40%, State Direct Investment Mechanisms utilised, deductions tighten, minimum value based royalties introduced, and valuation mechanisms improved. Additionally the Government should consider alternative mechanisms for capturing resource rents, such as Harberger Taxes (Declared Value System) and Resource Extraction Leases. Pastoral Leases, mining and petroleum rents Rents for pastoral leases should be set by the market, but regulations relating to environmental sustainability should be done by regulation like how zoning is utilised in urban town planning. Licensing costs should be moved from cost recovery towards land rents. Gambling Taxes These taxes should focus on recouping the economic rent accruing to licenses holders, and capture as much of this rent as possible. Other Taxes Taxes on production should be reduced, not increased or new ones introduce. __________ This challenge presents an opportunity for the Territory to create a more efficient, equitable, sustainable and independent revenue framework. Ambitious tax reforms will enhance the resilience and future prosperity of the Territory.

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Queensland landowners should act now to review their land tax liability

In brief - New valuations for properties located in parts of Queensland will take effect on 30 June 2019 On 6 March 2019, the Valuer-General issued new valuations for properties located in 18 local government areas across Queensland. The new valuations will take effect on 30 June 2019 and are used for the purposes of calculating local government rates, state land tax and rental payable to the State of Queensland under state leases. New valuations for properties in Queensland local government areas New valuations have been issued for properties in the following local government areas: Brisbane City Council Burdekin Shire Council Cairns Regional Council Etheridge Shire Council Gympie Regional Council Ipswich City Council Lockyer Valley Regional Council Logan City Council Longreach Regional Council Moreton Bay Regional Council Noosa Shire Council North Burnett Regional Council Redland City Council Somerset Regional Council South Burnett Regional Council Sunshine Coast Council Weipa Town Authority Western Downs Regional Council 2019 Property Market Movement Report The Valuer-General publishes a Property Market Movement Report each year in advance of the release of the new valuations. The Report for 2019 identifies an 8.2% increase in land values state-wide and provides some reasons for the approach taken by the Valuer-General. The Report identifies a 6.8% overall increase in land values in the Brisbane City Council area, with the industrial market being the strongest performer. According to the Report, buoyant industrial market conditions have resulted in an overall increase of 17.5% to industrial property values, with some significant increases in established industrial precincts such as Eagle Farm and Rocklea. Similarly, the Valuer-General cites increased demand for commercial office space in the Brisbane CBD as a key driver for increased commercial land values. The Logan City Council area has experienced an 11.6% overall increase to land values in that area. According to the Valuer-General, commercial and industrial land values in the Logan City Council area have increased since the last valuation in 2017, in particular, service station sites saw a significant increase in value. The Report identifies a 10.9% overall increase to land values in the Redland City Council area which the Valuer-General says is attributable to improvement in the market in most sectors since the last valuation in 2016. According to the Report, there has been a 10% overall increase to land values in the Sunshine Coast area since the last valuation of the area in 2018. Since its last valuation in 2017, the Ipswich City Council local government area has experienced a 8.8% overall increase in land values. Notably, strong demand for new development has resulted in significant increases to new development land values, particularly around Ripley.

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The Report cites increased sales activity in rural markets across Queensland (notwithstanding the fact that the majority of the state remains drought declared). The increased sales activity has resulted in an uplift in land values within the majority of grazing, horticultural, small crop and dryland farming industries. The Valuer-General identifies increased commodity prices and low interest rates as the key drivers for significant increases in the value of rural land in the Western Downs, Wide-Bay Burnett (Gympie, South Burnett and North Burnett) and Cairns. Implications of increased land valuations The Valuer-General has indicated that over the 12 months previous to March 2019, the Queensland property market had generally improved in all the major urban centres in South East Queensland, as well as in farming areas of regional Queensland. Landowners may receive new valuations for their property showing increases above the current valuation issued by the Valuer-General, which may result in an increase to their liability for rates and land tax. Objecting to new valuations Landowners who have received a new valuation issued by the Valuer-General may object to the new valuation by lodging an objection. An objection must be lodged within 60 days of the date of issue of the new valuation: for new valuations issued on 6 March 2019 the final date to lodge an objection to the valuation is 7 May 2019. Townsville City Council local government area Whilst properties located within the Townsville City Council local government area have not been valued this year, landowners whose property has been permanently damaged by natural disaster, including the recent floods, may apply for an amendment to the current valuation of their property to reflect the impact of the natural disaster on the value of their property. Any application must be made within 6 months of the date upon which the permanent damage occurred.

Average Victoria residential property tax hike: $97

Victoria property taxes for residences and businesses are set to go up 3.97 per cent. The average Victoria homeowner with a property assessed at $805,000 will see a $97 increase in their city property taxes this year. The increase for the typical business assessed at $644,000 will be $277. Council had already decided on a budget with an overall increase of 3.98 per cent. In setting the tax rate, councillors determined how that increase would be shared among property classes, deciding all should share the burden equally, with the exception of major and light industrial properties. “I think this is balanced in terms of protecting residential property owners from increases that would exceed their ability to pay in terms of being not too far out of whack from the rate of inflation, while still not having too much of a negative impact on business,” said Coun. Ben Isitt. Susanne Thompson, the city’s director of finance, said the overall revenue from the increase in property taxes is $5.2 million. The increases in city property taxes for residences and businesses are equal to 3.97 per cent. “When we include utilities, because those had a lower increases than the tax increase, the average increase for a residential property is 3.52 per cent and for a business property is 3.77 per cent,” Thompson said. The exact amount of a property’s tax increase will depend on changes to assessed value, she said.

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“Properties with assessments that increased above the average for their property class will see a higher per cent increase in property taxes payable and vice versa,” she said. “So if you have a lower-than-average change in the property you will have a lower impact to your taxes.” Assessed values for business properties increased an average of 10.06 per cent this year, compared with 8.33 per cent increase for residential properties, Thompson said, something that was a reversal from the past two years. For major and light industrial properties, property tax changes will depend on changes to assessments, which saw greater increases than other classes. About 60 per cent of the tax bill is the city’s share, while about 40 per cent is for other entities such as the school district and the Capital Regional District. The $97 figure is the increase for the municipal portion of the tax bill, which in 2018 was about $2,440 for the average property. The average total residential property tax bill — including all agencies — was about $4,070. The typical business paid about $6,800 in municipal taxes and about $11,300 overall.

Land tax debate back on as property slump hits states’ stamp duty revenues

As the property downturn starts punching billions of dollars out of state and territory government coffers, the debate has been rekindled on whether stamp duty should be replaced by a broad-based land tax. A recent report from the Sydney Policy Lab at The University of Sydney showed that forecast revenue from stamp duty has been downgraded by $9.5 billion between 2017/18 and 2020/21. In Victoria, the slowing market is expected to wipe $1 billion from the budget this year, while in Western Australia, Treasury is expecting to lose the same amount, but over the next four years. The figures prompted warnings from economists that stamp-duty dependent states, such as Victoria and New South Wales, would have to rein in spending as the cash dries up. Currently, in all states and territories, homeowners must pay stamp duty when they buy a home. The tax, paid in one lump sum is charged on a sliding scale, depending on the sales price. If a broad-based land tax were introduced, stamp duty could be discarded and owners would be charged an annual levy, around $1500, research from The Grattan Institute shows. Proponents of the change argue this would create a far more stable revenue for governments, while people would save more in the long run. The benefits The University of Sydney’s Dr Gareth Bryant said there were three key benefits of implementing a land tax nationwide. “There are three key arguments. One is that it is efficient. Two, that it is simple and stable and, three, that it’s fair,” Dr Bryant said. “In terms of efficiency, economists like land tax because it’s levied on unimproved land – the land itself, not the building or other improvements to the land, so it doesn’t discourage productive uses. “Stamp duty revenues are partially to do with the value of the land but more than that, it’s about how much land is being bought and sold – so stamp duty benefits from the speculative market whereas underlying land values are more stable. “They wouldn’t go up during booms and down during busts.”

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Last year, the latest Stamp Duty Watch Report released by the Housing Industry Association showed stamp duty had increased almost three times faster than house prices since the 1980s, totalling $20.6 billion in 2015-16 alone. How would it look? In 2012, the ACT began to phase out stamp duty over a 20-year period, replacing it with a land tax. Grattan Institute researcher Brendan Coates says other governments should follow suit. “The main economic benefit is that people can more easily move around – to bigger or small residences or across cities. They’re not currently willing to sell their houses because stamp duty is prohibitive,” Mr Coates said. The ACT has Australia’s most efficient tax base – every dollar of revenue raised costs the economy just 21.9 cents while NSW has the least efficient – every dollar of revenue raised costs the economy 29.7¢. “A low rate broad property levy using the council rates base could raise about $7 billion a year for state and territory governments through an annual levy of just $2 for every $1000 in unimproved land value, or $1 for every $1000 in capital improved values,” Mr Coates said. “Alternatively, replacing stamp duties with a progressive property tax – as the ACT has done. They chose a progressive land tax instead of a flat rate land tax, so properties on high-value land will pay more tax and those on less, will pay less. “The quantitative revenue will be similar to what we recommend, but we think a flat rate is simpler.” A switch to land tax would leave the economy stronger and boost livelihoods, Mr Coates argued. “We estimated that Australians could be $17 billion better off a year. It will reduce the deposit hurdle. The average stamp duty in Melbourne is $40,000 – that’s a substantial amount of money,” he said. “By making it easier for people to move, it would also free up the excess [housing] stock, and that frees up [eases] house prices by 6 per cent we estimated, in the long run.” The challenge is to raise enough revenue for the government to function, while not affecting those who have purchased property recently or older owner-occupiers who are asset rich but income poor. “You do that by phasing it out over time. The ACT is doing it over a long period – you’d probably only need 10 to 15 years.” No one likes new taxes Dr Frank Stilwell, of the University of Sydney, argued that while he thinks a land tax would be a lot fairer on Australians, getting the political gong would be near impossible. “Any new tax is unpopular, and a tax that can be derided as a impost on the family home is not politically an easy road to go down,” he said. “Stamp duties are the single most lucrative form of revenue for state governments and they have a political acceptability because everyone is used to them. A land tax would be equitable, but it would be political dynamite. “We’ve got the possibility of a very good tax base in the land tax, but we can never use it. It’s tragic.”

ACT government works to re-design 'confusing' rates assessment notices

The ACT government is working to re-design the rates assessment notices that created confusion for some Canberra homeowners by making it appear as though the full year's bill had to be paid at once, rather than in instalments. Last year, the government issued rates notices with "PLEASE PAY NOW" printed in the top right-hand corner in a large box, along with the total bill for the year.

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The various payment options were listed in a less prominent area on the back of the notice. Residents including Watson man George Gamkrelidze, who wrote to a letter to the editor in The Canberra Times to warn fellow Canberrans, derided the notices as misleading. ACT Greens treasury spokeswoman Caroline Le Couteur called on the government to make the notices clearer, in a motion brought forward in the Legislative Assembly. Ms Le Couteur said a major trigger that led people to move from being financially stretched to being in financial hardship was the arrival of bills like rates notices, and it was crucial that payment options were made as clear as possible. With the motion having passed the Assembly, an ACT government spokeswoman said the government was addressing the issues raised. The spokeswoman said the government had aimed to make rates notices "simpler and clearer for Canberra homeowners to read and understand" with the change in format last year. But she conceded the new-look notices sent to households in 2018 had created uncertainty for some ratepayers. "The government has heard and understood feedback from the community that the re-design of the rates notices has resulted in confusion for some Canberra householders," the spokeswoman said. "All annual rates notices have now been issued for the 2018-19 year, but we are using this feedback to inform further design work on the notices for future years, including addressing the issues raised through the Greens’ Assembly motion." The territory government has already taken action on another aspect of Ms Le Couteur's motion, which called for the government to write to all residential ratepayers who received concessions to explain the payment options available to them, including deferrals. These letters were sent to some 13,700 Canberra households last month. "Life in Canberra can be a tale of two cities," Ms Le Couteur said. "While Canberra is a high-income community with a growing economy, a substantial number of Canberrans struggle financially and rely on federal government assistance payments to make ends meet. “By ensuring that those eligible concession holders who pay rates know what supports are available to them, we’re working to ensure that the system is fairer for all.” The next batch of ACT government rates assessment notices is due to be issued in August 2019.

Canberra's tax reform exposed huge flaw in system

The Barr government's historic tax reform has aggravated an underlying flaw with the ACT's valuation and leasehold systems, a parliamentary committee has found, even going so far as to call for compensation for some property owners. The territory government embarked on reform in 2012, gradually abolishing stamp duty in favour of higher land taxes. But the Public Accounts Committee's inquiry into commercial rates rises on Thursday found ratepayers were experiencing "undue hardship" and "anomalies" stemming from fundamental problems with the regime. The ACT Valuation Office appeared to be making valuations on the basis of very little information and applying them across entire districts "for want of a better method", the committee report said.

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While this mass appraisal method is used in other Australian jurisdictions, the ACT is the only one which has a leasehold system where land is granted for a set period and a certain purpose. This added a level of complexity which was not being taken into account by the Valuations Office when calculating the unimproved value of a parcel of land and tax bill, the report said. Compounded by the poor appeals process with its prohibitive costs, property owners had no recourse which in turn appeared to be having a "chilling effect" on investment. The committee took the extraordinary step of recommending the government look at compensation for ratepayers who experienced sudden, large increases in rates because they had retrospective assessments done or were required to pay for unactivated uses. It also recommended commercial rates revert to 2012 levels while a taskforce looked at the overall economic impact of the rating system and tried to find ways to improve certainty and transparency for landholders. Labor backbenchers Bec Cody and Tara Cheyne dissented from those recommendations. "The committee takes the view, on the basis of a diversity of opinion that was put to it in the course of the inquiry, that there should be a concerted effort to effect change in the commercial ratings system and that, given the range of interests involved, it is unlikely that government alone can achieve the changes that are necessary," the report said. "Government should work with other stakeholders to design a new commercial rates regime that will be a better match to conditions in the territory." The government has also been urged to reconsider the "appropriateness" of retrospectively charging people years of commercial rates after a belated revaluation, after the committee heard of cases where property owners were given 28 days to pay five years of rates. The committee also urged the government to look at introducing a system of apportionment so landowners were only paying for the activated uses. That followed evidence from the ACT Valuation Office's own landlord, whose rates went from $100,000 to $1.4 million in three years following a revaluation of the block which deemed it should be redeveloped into a mixed-use precinct. The landlord is unable to redevelop the site until the Valuation Office's lease expires in November 2020. The government has also been urged to introduce rates concessions for heritage-listed properties to take into account strict rules around the use and redevelopment of the sites. The committee heard from a Manuka property owner whose commercial rates are about 10 times greater than what the residential rates for the same parcel of land would be. She cannot redevelop the block because of a heritage nomination. The government was also told it needed to find a fix for the case of Karen Paxton, who got hit with a valuation increase of more than 300 per cent in a single year on a block she is only allowed by Crown lease to use for storage or parking. Other recommendations include introducing a mediation system for landowners to resolve valuation disputes, as well as incentives to attract more valuers to the ACT.

Committee calls for review of ‘flawed’ commercial rates system

Small businesses are hurting under the current commercial rates system, the committee found. An Assembly committee has recommended the establishment of a task force to review the commercial rates system in the ACT after it found businesses were hurting from its one-size-fits-all approach, anomalies, inflexibility and an onerous objection process.

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It also found that the system remained fundamentally flawed due to a mass appraisal approach that did not take into account the complexities of land use within individual leases, throwing up inequities that cast doubts on its fairness. Among 25 recommendations, the committee urged the connection between the revenue and valuations offices be broken, so that the valuations were not performed in the same area responsible for collecting revenue; and introduce another mediation process to deal with objections as a cost-effective alternative to the ACT Administrative and Civil Appeals Tribunal (ACAT). The committee found the system was unresponsive and lacked transparency, producing uncertainty for businesses which also found objecting to valuations difficult and expensive. It found that the location of the ACT Valuations Office within the Revenue Office amounted to a conflict of interest and also made it harder for businesses to pursue objections. It also believed that the system was having a chilling effect on commercial activity and investment in the Territory, and possibly driving businesses across the border. Smaller property owners, in particular, were hurting and increased costs were being passed on tenants and their customers. “The Valuation Office appears to be making assessments, on the basis of very little information, and then applying them across areas and precincts. It was inevitable that such an approach would produce anomalies and inequities, and that is exactly what has occurred,” committee chair Liberal MLA Vicki Dunne said. “In short, the fundamental problem is that the Territory has adopted the mass appraisal method used in other Australian jurisdictions without attending, sufficiently, to an underlying rating base characterised by a complexity — due to the presence of use purpose clauses for individual Crown leases — not seen in any other jurisdiction. For mass appraisal to be effective, the ACT government must do something to rationalise the ratings base.” The committee also recommended that the Government consider compensating ratepayers who have experienced sudden large increases in rates due to long-term retrospective rates reassessments or have been required to pay rates on the basis of unactivated uses. Opposition Leader Alistair Coe seized on the committee’s findings, saying Chief Minister Andrew Barr must stop the crippling commercial rates regime and warned that Canberra would lose even more businesses and jobs if the Government did not act. “I called for an inquiry into commercial rates because I was troubled to hear local businesses were leaving Canberra due to unsustainable rates increases and loopholes,” Mr Coe said. “The evidence presented to the committee demonstrates businesses in Canberra are clearly hurting. The financial pain being felt by so many local businesses is compelling and needs to be carefully considered by this government. “Commercial property owners have seen the value of their property decrease due to reduced yield as a result of increasing rates. Some commercial properties have seen their rates increase by 300 per cent.” But a spokesperson for Mr Barr said the Government had already addressed many of the issues raised in the inquiry through its own submission, which says comparisons with NSW should not be made and points to land tax and stamp duty reforms. The spokesperson said the Government would review the inquiry’s recommendations and respond in detail in coming months. “The Government is currently implementing a 20-year tax reform agenda that is making our tax system as a whole fairer, more efficient and more sustainable,” the spokesperson said. “The Government is establishing a Tax Reform Working Group to analyse the impact of these reforms in their first two phases, including many of the issues raised by the committee’s report.”

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New way for landlords to skip land tax. But it comes at a real cost

Landlord Krishna Sadhana has signed up for a $1400 a year saving in land tax, but it will come at a cost of missing out on $5000 a year in rent, leaving her $70 a week out of pocket. From April 1, landlords who rent through Community housing provider CHC for 25 per cent less rent than market value don't have to pay land tax. CHC is looking for 100 altruistic Canberra landlords to take on low-income tenants in return for a land-tax exemption. Up to 100 properties are eligible for the exemption as part of a two-year pilot program, after legislation passed the ACT parliament last week. The exemptions only apply if the property is rented through CHC or other registered community housing providers and if the tenants aren't eligible for public housing. Ms Sadhana said she would sign up for the scheme, despite losing $70 a week. The Watson resident already rents out her property, also in Watson, to disadvantaged tenants, and said she wanted to help give back to people doing it tough. "It may be a financial loss [to take part in the scheme] but it's a gain in other respects," Ms Sadhana said. "I know the word landlord and ethical don't seem to go together and I'd like to challenge the status. "People who are in a good position should be able to help those aren't in a good position." She said it was an easy decision to make to rent out her property to low-income tenants at a reduced rate. "In my past when I was a single parent, at times I was living in very poor conditions, and I would've wished there was someone who could have come along to offer affordable housing," she said. "Now I'm in a lucky position, it wasn't a hard decision." The chief executive of CHC, Andrew Hannan, said the changes would make Canberra's competitive rental market more affordable. "It has the potential to be really impactful and it offers a new pathway to grow the supply of affordable rental products," Mr Hannan said. "This is a very targeted scheme to assist those who are the most acutely affected by the Canberra rental market." There are 11 community housing providers in the ACT, operating almost 900 homes. Mr Hannan said the scheme would depend on landlords willing to switch property management companies to a community housing provider such as CHC. While landlords would be out of pocket due to the reduced rent, the tax exemption would help to minimise it. "The scheme is reliant on people being philanthropic and while some landlords will be worse off financially, they'll be making a difference in mobilising for the broader community to give them the opportunity to enter the Canberra rental market," Mr Hannan said. "More than 50 per cent of renters are in some state of housing stress, and this scheme directly targets that cohort who are affected." A December 2018 Domain report found Canberra had the highest median rental price for houses and the second highest median for unit rentals out of Australian capital cities.

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The median price for renting a house in the nation's capital is $560 per week, while the median unit price is $465 per week. The land tax exemption was pushed by the ACT Greens, whose housing spokeswoman, Caroline Le Couteur, wants it to be extended beyond the two-year trial to attract more landlords. "The biggest issue is getting landlords to sign up, particularly if it's only happening for two years," Ms Le Couteur said. "If it was an ongoing scheme that would run for an indefinite amount of time it would work. The scheme won't be an overnight success, but give it time and enough people will sign up." Ms Le Couteur said the Canberra property market would be well suited for the exemption scheme. "One of the big markets in Canberra are people [in the public service] who are on overseas postings and can lease it out to a tenant while they're on their posting," she said. "There's a big market in Canberra for those people, and Canberra is a very unaffordable place to rent." Ms Le Couteur herself has a rental property which she rents to migrant community members.

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AUSTRALIA – April 2019 · CASH-STRAPPED COUNCILS BLAME NSW GOVERNMENT FOR PROPOSED RATE HIKE ... limit negative gearing to new housing and halve the capital gains tax concession