Should Victoria’s Investor Taxes Stop You From Investing Here?
There’s no doubt that Victoria’s new property taxes are scaring investors away.
But are higher taxes, brought in to help repay the state’s Covid debts, enough reason to avoid the state?
Or is it mainly hype and fear mongering? Let’s dive in and find out.
There are two main taxes which are scaring investors off Victoria.
And we’ll deal with the simplest one first – Stamp Duty.
What Is The Impact Of Stamp Duty In Victoria?
Stamp duty is often mentioned by investors as one reason they avoid investing there.
But is it really as high as people think?
A quick comparison between states, based on a $700,000 investment property gives some interesting results.
Victoria does not have the highest stamp duty rates in Australia.
Not by a long shot.
In fact, the award for Australia’s highest stamp duty is the Northern Territory. (Yes, I know it’s not technically a state).
The next highest is South Australia, with NSW and Tasmania also coming in higher than Victoria.
In fact, Victoria’s stamp duty including the transfer fee for this example is $26,447. And this is quite reasonable compared to NT which weighs in at a hefty $34,799.
Queensland, Victoria, Tasmania and NSW are only separated by less than $3,000, meaning Victoria’s stamp duty is quite reasonable by national standards.
What About The ‘Covid Tax’
Of course, the elephant in the room is known more commonly as the Covid Tax.
The state government recently increased land tax payments to help pay off the debts incurred as a result of Covid, and it is hoped to raise $4.7 billion over the next decade.
However, many investors have sworn off investing in the state, worried it will make it unaffordable.
As a way of explaining the impact of this, let’s break it down.
The first component is a levy.
This is a flat $975 levy paid on any holdings over $300,000, with a smaller levy of $500 on holdings under $300,000. There is no levy paid for holdings under $50,000.
The second is an increased land tax.
In order to raise more cash, the government has also increased land tax rates.
Land tax is based on how much real estate you hold (the value of the land, not the house on it). And it does not include your PPR – your Principal Place of Residence.
The more land you have, the higher the percentage you pay in land tax.
You can see the impact of the increases in this table.
The right hand column shows how much more you’re paying in 2024 onwards, compared to previous years.
Of course, they look pretty daunting.
However, there are some things to note.
First, these are on your land holdings only, not the entire property.
It’s the value your land would be without a house on it.
And second, these are tax deductable expenses.
The higher tax bracket you’re on, the more you claim back.
We recently undertook a detailed analysis of a ‘typical’ investor with two investment properties, plus a Principal Place of Residence (PPR).
For the analysis, we used land values of the investments of $580,000 and $500,000.
Based on the previous land tax structure, this investor’s land tax was $3,615.
And under the new structure it will be $5,369.
This is a difference of $1,754 per year.
And when we analysed their cashflow…
They Were Just $11 A Week Worse Off
To put this in context, this is about as much as my wife and I spend on a couple of lattes in the morning.
In other words, not much at all.
It’s certainly not the disaster many people are terrified of.
Is It Worth Paying An Extra $11 A Week To Invest In Victoria?
For the opportunity to invest in a couple of high quality Victorian properties, an extra $11 a week is pretty minor.
Especially since you can be investing in a city which we’re tipping to be a star performer in the next few years.
Traditionally, Melbourne is Australia’s second most expensive capital city.
However, it has recently fallen down the list with low capital growth compared to other cities.
Some investors see this as a bad sign.
Except we see it as an opportunity for shrewd investors.
The fundamentals in Victoria, and in Melbourne in particular remain extremely strong.
The population in the state is soaring, with a 2.9% increase in the last 12 months.
That’s the second highest in Australia, only slightly behind WA.
And it remains a magnet for immigrants.
The government is spending an astonishing 20% of its budget on major projects, with new roads, train lines and economic hubs attracting business to the state.
And of course with its thriving cultural and sporting scene, it’s a popular place to live. It’s no surprise that it was recently ranked the 9th best city in the world.
Plus, for investors the rental yields of 4% to 4.5% are among the most attractive in the country.
This is why we’re excited about Melbourne, and why we expect it to rebound strongly.
What Are Your Options In Melbourne?
There’s no question about Melbourne’s potential to regain its rightful place in the pecking order.
But does this mean it’s the right place … for you?
And if it does, where in Melbourne is best for your financial situation and your goals?
We’re offering a complimentary consultation with one of our Discovery Consultants (valued at $495) by filling out the form below.
Don’t wait – take advantage of this exclusive opportunity and kickstart your path to wealth today.