Again, it’s the same. The Government, media and general public’s
mentality is that all residential investors are super rich. They believe they are
cashed up and they can afford to assist with subsidising the rental income of
tenants affected by COVID-19.
The truth is, they are far from this. The average person that invests in
property is your mum and dad investor. They are people just trying to make a better
future for themselves. They have worked hard, paid their taxes, saved a
deposit, purchased a home and built equity to invest. Or they have saved a
deposit and are renting but decided to invest in a property instead of
purchasing their own home.
According to the ATO nearly 2,100,000 people own a share in one or more
investment properties. With the Australian population sitting at 25,500,000, that’s
only 8.23% of the population that choose to invest.
Of this approximately 1,500,000 invest in only one property. They are
not the super-rich. They are working class Australians.
Clients’ story
We have clients who recently settled on an investment property in
Melbourne – a one-bedroom apartment with parking. The purchase price was under
$400,000. It rented for $460 per annum pre COVID-19. Great result. Incredibly
happy clients and investors.
Post COVID-19 the tenants work in Hospitality. They are now un-employed.
They are non-Australian residents; they are not eligible for JobKeeper or
JobSeeker payments. They have negotiated to reduce their rent by 50% for 6
months and do not have to pay any lost rent back to the landlords. This is a
loss of $5,980.
Land tax
When an investor pays land tax it is based on the value of their land or
portion of the land if it’s a strata property. It’s based on the combined value
of their land in each individual state. If you own an investment property and
the land portion of the property is valued below $250,000 you don’t pay land
tax. Above $250,000 the scale is below.
Total taxable value of land holdings Land tax payable
< $250,000 Nil
$250,000 to < $600,000 $275
plus 0.2% of amount > $250,000
$600,000 to < $1,000,000 $975
plus 0.5% of amount > $600,000
$1,000,000 to < $1,800,000 $2,975 plus 0.8% of amount >
$1,000,000
If an investor owns land valued at $600,000 their land tax bill would be
$975. If they are eligible for the Victorian Government land tax relief
package, which is a 25% discount on their land tax bill, they will
save $247.35
So here is the real problem with this relief package.
Most residential investors that invest in property don’t own land valued
above $250,000 in Victoria. Most invest in apartments or lower priced house and
land packages.
They own one property. They are not rich; they are like you.
My client’s one-bedroom apartment land value is $58,000. They would have
to own 5 of the same one-bedroom apartments to reach a land value of $290,000.
If they could afford to own 5 one-bedroom apartments their land tax bill
would be $355 and they would receive a discount of $88.75. However, as they only
own one property they will not receive any land tax relief.
They will be out of pocket $5,980.
This is far from a lifesaving financial relief package for residential landlords
but rather just another way the Victorian State Government has short-changed
investors. Offering a $420 million dollar land tax relief package for COVID-19
is far from protecting landlords.
If you would like to discuss how to best plan and manage your cash flow,
then we are here to help.
Please call me on 0401 214 134 or click the link and book a Zoom meeting.
