Amid growing calls for a cut to stamp duty in Western Australia, there is a groundswell of support building for land tax reform, including a move for it to be abolished.
Amid growing calls for a cut to stamp duty in Western Australia, there is a groundswell of support building for land tax reform, including a move for it to be abolished.
Loudest of all in favour of land tax relief is Yallingup holiday home owner John Hanrahan, who is planning a protest rally on the steps of parliament house on February 27 over what he perceives is a discriminatory and unsustainable tax.
Highlighting the concerns of those advocating tax reform is the government’s mid-year budget revision from late last year, which puts revenue from land tax receipts at $391 million for 2006-07, a 25 per cent jump on last financial year.
It also represents an extra $49 million in land tax revenue above its May budget forecast.
Land tax is levied on the unimproved value of taxable land owned at midnight on June 30, immediately preceding the year of assessment, and is payable annually by the owner.
Submissions to the State Tax Review currently in progress reveal a strong community objection to the tax, according to the state tax review reference group appointed by the state government, which released an interim report in December 2006.
A large number of submissions call for relief in the form of abolishing land tax, reducing rates, increasing thresholds, placing a cap on land tax revenue, or introducing a single rate of land tax.
Escalating land values and the resultant bracket creep is another area of concern. Despite government threshold increases from July 1 2006, many landowners have found themselves in a higher tax bracket due to the sharp rise in property prices.
From that date, the exemption threshold was increased from $130,000 to $150,000, the second threshold from $290,000 to $390,000, and the third from $750,000 to $875,000.
The Real Estate Institute of Western Australia believes land tax bills are having a big impact on the investor market, particularly at the lower end.
Many investors are reportedly facing difficulties meeting the unbudgeted expense of sharply increased land tax assessments.
REIWA president Rob Druitt said he hoped the government realised that land tax was a big problem in its current form and the cost impost was being passed on to renters.
“There have been significant land tax re-evaluations due to rising property values recently and it results in rent increases down the line,” Mr Druitt told WA Business News.
“The government adjusted the threshold last year, but it’s nowhere near the reality.”
In its submission to the review, REIWA recommends the government should aim to hold land tax revenue to the CPI by using the rate in the dollar to adjust for valuation increases and base assessments on the value of the individual property, rather than the aggregate of all properties.
It also called for the reinstatement of the residential land developers’ concession, which was removed from the 2003-04 land tax year.
Going a step further in its submission, the Property Council of Australia (WA) has called for land tax to be abolished over the next 10 years, starting with the either a reduction in the number of tax brackets/rates and/or regular adjustments to thresholds, as well as the introduction of a cap on the total annual land tax revenue.
PCA WA executive director Joe Lenzo said the residential land developers’ concession should be brought back because it would act to smooth out the supply of lots, particularly now as land supply was a problem.
Mr Lenzo said some developers were holding on to blocks up until June, and selling them in July to avoid paying higher land tax bills.
“For the sake of a few dollars, it will smooth the curve,” he said.
Overseeing the state tax review reference group as chair is Jackson McDonald partner Jonathan Ilbery, who is responsible for collating the recommendations of 26 groups and various individuals into a report during March.
The chair will then be called upon to provide independent advice to the government prior to the delivery of its May budget.
Mr Ilbery said most of the submissions to the review had wanted land tax rates to be lowered, and suggested the government could address this in the next budget if other primary levels of revenue were identified.
Responding to claims that the speculation of budget outcomes would deter people from buying property, Mr Ilbery said it was a fact of life that tax drove investment decisions.
He is certain the government won’t be making any moves on tax reform until the report of the review has been considered.
