Victorian Budget 2023-24 – Implications for Australians and Australian Expat Property Investors

The Victorian State Budget for 2023-24 has introduced significant changes to the Land Tax and Absentee Surcharges. These changes have far-reaching implications for both Australians and Australian expat property investors.

In this blog post, we will delve into the details of these changes, analyse their impact on individuals and businesses, and provide insightful case studies from our perspective as Financial Planners. By understanding these alterations, you will gain a clear understanding of the new policies, as well as how they could impact your property investment strategy and holding costs going forward.

Overview of the Changes

The 2023-24 Victorian State Budget has introduced two major changes in the Land Tax and Absentee Surcharges. Firstly, the government has reduced the Land Tax free threshold for property owners in Victoria, and introduced some fixed and temporary fees to essentially repair the Covid-19 Budget. Secondly, it has increased the Absentee Surcharge for foreign owners who hold properties in Victoria but do not reside there.

Specifically, the changes to Land Tax are as follows:

• Reduction in the land tax-free threshold from $300,000 to $50,000 in terms of assessable land value.
• Temporary fixed change of $500 for landholdings between $50,000 and $100,000 in terms of assessable land value.
• Temporary fixed charge of $975 for those with landholdings of between $100,000 and $300,000 in terms of assessable land value.
• For general taxpayers (non-trust landowners) with total landholdings of above $300,000, and trust taxpayers with landholdings of above $250,000, the land tax will increase by $975 plus 0.1% of the taxable value of the land.

Impact on Australians

The changes in Land Tax and Absentee Surcharges have direct consequences for Australian property owners. If you own an investment property or multiple properties in Victoria that surpass the revised Land Tax thresholds, this could result in a significant increase in your annual Land Tax. This could also impact your ability to maintain or expand your property portfolio, and should certainly be factored into your long-term planning.

Case Study 1: John – A Residential Property Investor

Let’s consider John, a Financial Planner who specialises in residential property investment. John owns multiple residential properties in Victoria, and with the revised Land Tax rates, his tax burden has increased substantially. This unexpected expense puts a strain on his finances, forcing him to either sell some properties or find alternative sources of income. John will need to analyse the financial viability of his investment properties and adjust his strategies accordingly to mitigate the impact of the increased taxes.

John’s negative cash flow may become unsustainable, and if so, he may be forced into a position where he is faced with unexpected capital gains tax bills for having to offload one or more of his investment properties.

Impact on Australian Expat Property Investors

The changes in Land Tax and Absentee Surcharges also have implications for Australian expat property investors. Australian expats who own properties in Victoria but do not reside there are subject to the Absentee Surcharge. With the surcharge increase, these investors may face a higher tax liability, potentially reducing the attractiveness of property ownership in Victoria.

Case Study 2: Sarah – An Australian Expat Property Investor

Let’s examine the case of Sarah, a white-collar professional based overseas. Sarah invests in Australian properties, including some in Victoria, as part of her long-term wealth creation strategy. However, with the increased Absentee Surcharge, Sarah’s tax obligations have risen considerably. This unexpected financial burden prompts Sarah to re-evaluate the profitability and viability of her property investments in Victoria.

Sarah may also be faced with significant capital gains tax bills, particularly given that as an Australian expat, she is not granted the Main Residence Exemption (MRE) for a property that may have been her main residence, nor is she granted the 50% discount on capital gains for assets held for more than 12 months given her expat status. This puts her in a difficult position, which may require some detailed planning to identify the suitable path forward.

Strategies for Mitigating the Impact

As Financial Planners, our team at Ally Wealth play a crucial role in assisting individuals and businesses to navigate the changing landscape of property taxation. Here are some strategies they might recommend to mitigate the impact of the changes:

Reviewing Property Portfolios: We can conduct a thorough review of clients’ property portfolios to identify tax implications and assess the financial viability of each property. We can help clients make informed decisions about retaining, selling, or diversifying their property holdings.

Tax Planning: By incorporating tax planning strategies, such as utilising allowable deductions and structuring property ownership, we can help clients optimise their tax positions and minimise the impact of increased taxes. This could include such strategies as superannuation contributions, the prepayment of interest on investment loans or other deductions to minimise the overall tax impact.

Investment Diversification: We can guide clients to explore investment opportunities beyond property. Diversification across various asset classes can help reduce reliance on a single investment and spread risk more effectively.

Overseas Tax Considerations: For Australian expat property investors, we can assist in evaluating the overall tax implications, including potential double taxation issues, and recommend suitable structures or jurisdictions to optimise tax outcomes. Our team at Ally Wealth have a great deal of experience in dealing with cross-border clients who have income and assets in multiple jurisdictions.

Conclusion

The changes to Land Tax and Absentee Surcharges in Victoria’s 2023-24 State Budget have substantial implications for both Australians and Australian expat property investors. The increased taxes may impact individuals’ investment strategies, property portfolios, and overall financial well-being.

We can play a pivotal role in helping clients navigate these changes by providing tailored advice, conducting portfolio reviews, and implementing strategies to mitigate the impact of higher tax liabilities. Understanding the nuances of these policy changes and seeking professional guidance will empower you to make informed decisions and adapt to the evolving property investment landscape in Victoria.

Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.

Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.

Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.

General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.