State Revenue Office and Land Tax- How fair is this?

I sold a house last year and rang the SRO to arrange a refund of the Land Tax paid for the remainder of the year. I was told the SRO do not give refunds, and indeed they do not, as shown in this statement on their website.

“Please note: we do not adjust land tax assessments for property bought, sold or settled during an assessment year. Your solicitor or conveyancer can advise you about any land tax adjustments made on settlement.”

I am speaking of people who are liable to pay Land Tax. Land Tax for the year is paid on property you own at December 31st of the preceding year. So if you buy a house on December 30, you pay Land Tax on it for the following year. If you buy two days later on January 1st, you pay nothing for that year (because the poor bugger you bought it from is paying it for you!!)

Why would anyone agree to adjusting at settlement when they wouldn’t have to pay it anyway as they would not be assessed until the Dec 31st after purchase. In my case, the buyer would not have agreed to adjust at settlement because it was to be their principal place of residence so no Land Tax would be payable anyway.

Insurance companies refund monies for unused portions of an insurance term. How is it that the SRO cannot deal with simple transfers of property and adjust accordingly to make it fair for everyone ie owner pays? And more importantly, how is it that the SRO is allowed to continue charging you taxes on property you no longer own?

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Yes Dawn: I understand the logic of your point, exactly.
In our case, we had had long-term tenants in our former family home, so long that the NSW SRO charged us land tax at the rate of about $14,000 each year for many years.
When we sold it in January of one year, I sought a refund from the SRO, to be told like you, that the did no refunds in such a case, that if we were liable on their “census” date of 31st December of a year, then the full amount was chargeable at that point, with no refunds at all. Very angry about that, but absolutely nothing that we could do about it. Thanks for raising the issue.

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One consideration to bear in mind is that Land Tax is assessed on the aggregated value of your non-exempt holdings in the relevant state. So if you have a single non-exempt holding (one investment property and zero or one principal place of residence) then the “refund” that you are talking about almost makes sense. However imagine how complicated this would be if you own more than one non-exempt holding. It gets even worse if the properties in which you have an ownership are owned by different sets of owners. It gets even worse if some of the owners are not Australian residents.

Even in the single property case, the state government doesn’t really want to refund you and then go chasing the new owner for an amount of money (which could be the same amount, or could be a different amount, or could be zero).

I can understand why the (NSW) state government just wants to keep it simple.

About the only way to make this fairer would be for you to be assessed and pay more frequently e.g. quarterly. However this would not work well (currently) because of the long delay between settlement and when the conveyancer will have reported the transaction to the state government. So that would want to be fixed first - and in any case there is a cost for everybody in paying smaller amounts more frequently. For a problem that only occurs every “7” years, perhaps this is not worth the cost.

The other way to make this fairer would be, more radically, to scrap Land Tax completely and instead to raise a corresponding tax on all properties, in which case an adjustment could always be included in the settlement (as occurs for other similar taxes and charges). That would be fair, as well as getting rid of most of the complexities of the current system.

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That discounts how governments are acting. They are flooding to change annual rates payments to quarterly, claiming they are just getting in synch with the rest of the economy (eg electricity accounts and others). Yes, there are costs and and yes having to pay rates quarterly rankles me, but many could be happy since it is not the single big hit and rates are thus easier to budget. But that is about government thinking, not expressly about taxation issues.

Do you honestly think if government enacted such a tax any other tax would be commensurately reduced? FWIW that is how US jurisdictions work to fund local government. Real estate taxes are thus levied in isolation from all others, and each entity able to levy taxes does their own thing regardless of the others. Bottom line is taxation takes a step up and never equalises.

An alternative is for legislation for the buyer to put 100% of the estimated annual land tax in escrow and when the bill comes due the escrow account is then split amongst the parties by calendar days of ownership. That way the seller is compensated and the buyer could well be slugged, so a way for the buyer to get a refund from government would have to be included.

That gets less simple, but why should ‘we’ pay a price for government to have an easier time on our dollars?

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HI TheBBG and Person.
Just to be clear, I am in Victoria and was paying my land tax quarterly. But that doesn’t matter as I am expected to continue the payments until fully paid for the year anyway.

What rankles with me is that these taxes were supposed to go when GST came in, not that I ever trusted the government to honour that!

What is so hard about doing an adjustment at settlement, just like the rates, water and body corporate etc? Conveyancers could contact the SRO to find out if the buyer would be liable to pay land tax and if so, how much. I am compensated in the adjustments or given a refund from the SRO. If the buyer’s debt is greater, the conveyancer collects from the buyer and sends it on to the SRO.

I just can’t understand how they can force me to pay taxes on something I no longer own?

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Nothing but you are able to negotiate the value of your contract with the buyer prior to signing to include such disbursements. The party buying from you can them discuss the value with you and If you don’t like the value they offer you can refuse to sign the contract. This will avoid not being reimbursed for the Land Tax you are required to pay to the Government and then you can negotiate with the next prospective buyer and so on until you find one who agrees to your terms.

You are required to pay because you owned the land and were liable for the Tax as per the legislation, this is not the concern of the party who is buying the property from you. It is of no concern to them regardless if they are going to be liable for the Tax in the future or if they are exempt. If in the future they sell the property then they will need to ensure they get the contract price they require to offset these costs if they are liable for them.

Ahh but this is a totally different matter. This requires the voters of whichever State to protest the current legislation. The people need to contact their members of their State Parliaments to make it clear they want the Law changed, petitions, rallies, newspaper comments, funding and voting for Candidates who can and will support these changes (this largely leaves out party politicians) and other such means can bring about the changes you want. It requires a huge amount of people power in the political area to get the momentum to change occurring.

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My recollection was this tabled when GST was first announced and when the GST was to be broad based (no tax free exemptions). To get through the senate, concessions were given and the states could continue with their own taxes, as exemptions were given (such as no tax/GST on some foods etc).

At the end if the day, one can easily argue any tax is unfair. When making investment decisions (including ones own home), one needs to understand potential costs associated which such investment. This includes land tax on asset discharge/selling and how it is applied.

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How is that fair if the buyer intends to use the property as Principal Place of Residence (PPR) and hence has no land tax liability at all? (However between the time of settlement of that property and the end of the calendar year, the buyer could purchase another property.)

What if the amount put into escrow is less than the required amount because the estimate is poor?

Also, I don’t think buyer or seller wants to have to defer sorting out the land tax liability until more than a year after the transaction settles. You want to do the transaction and have it over and done with! What if the seller is moving overseas (grey nomad world tour?) and the last thing on his/her mind is stupid state government bureaucracy?

There is a minor privacy issue here too i.e. one party may be able to infer the aggregated value for land tax purposes of the other party.

With the current system, I don’t think there are any great solutions.

LOL. That’s a political problem though. I was considering only the fairness (or lack thereof) in how the tax is currently administered.

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The current system is not really amenable to that - for all the reasons mentioned in my first reply.

Adjustment only works when your pro-rated refund exactly equals the buyer’s pro-rated liability. That works fine with council rates because the tax depends only on the specific property and everyone pays the same.

I agree 100%. The current system is not fair.

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There will always be a litany of what if’s that could be addressed in multiple ways. Bottom line is there are numerous ‘solutions’ each being imperfect in one or another way and as you wrote

The best for us, but apparently unacceptable to governments, is removing the tax and hoping against hope another equal or worse is not in the pipe to replace it.

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Agreed, the situation you note is not perfect. You are not alone in your observation. Pragmatically as an investor land tax is just another cost of doing business.

Is it a fair tax and is it fair there is no refund on sale?

We all pay many costs as individuals privately, as investors or as a business. Often these costs are single annual costs. There are no refunds when you opt out or change status for more than just land tax.

EG car registration, licenses or professional fees, union membership paid in advance, sporting club membership etc etc.

For income tax adjustments if you are due a refund you wait till July each year to put your hand out.

For any investor the rules of land tax in each state are well known. It’s a choice we each make when we choose to invest in property. We can also choose when we sell an investment and the price we will accept knowing that there is no pro-rata refund of land tax.

You also get the benefit of not being assessed for the period of ownership between purchase and the first annual assessment date?

I can’t complain about that.

Is land tax a fair tax? It has been helpful to read the alternative solutions to making it a better tax. It’s as fair as any other tax, which all depends on who you are and your personal cumstances in life? History says so.

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[quote=“mark.mlmaths, post:11, topic:15095”]
Often these costs are single annual costs. There are no refunds when you opt out or change status for more than just land tax.[/quote]

That in and of itself doesn’t make it “fair”.

I wouldn’t compare $30 on a club membership with $12,000 on land tax either. The paperwork involved in pro-rating a refund on a $30 club membership would be hard to justify. (Even then, some clubs will offer you a reduced first-year membership fee if you join “close” to the annual renewal date, which most people would recognise as an attempt at fairness.)

[quote=“mark.mlmaths, post:11, topic:15095”]
car registration[/quote]

That’s a bit different though. Everyone has to pay car registration and hence the buyer can recognise the value inherent in some number of months of remaining registration. That does not apply with land tax if the buyer will not be subject to land tax. There is no value to the buyer in that case.

Even when there is value to the buyer in the land tax that has been paid, there is no legal obligation on the buyer to accept an adjustment for land tax paid.

If you can negotiate an adjustment then that’s good. An adjustment is similar to the alternative that you suggest i.e. pricing accordingly, however pricing accordingly cannot take into account the different land tax positions of the potential buyers.

Although not everyone who ends up paying land tax “chooses” to invest in property. Some properties end up being land taxable even if not originally purchased as an investment (and hence, incidentally, no possibility of getting any “benefit” at the time of original purchase).

If the land tax system got ‘fixed’ in some of the ways suggested above then what happens at the beginning of ownership and what happens at the end of ownership would both potentially change. It might make no nett difference at all. Or it might be much fairer. It would not be less fair.

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By coincidence, between the time of my first post in this topic and now, someone I know has sold a property where both buyer and seller are subject to land tax and an adjustment for land tax paid was made on settlement. So it can happen.

I don’t know whether the rules vary from state to state, land tax being a state tax. However the real question is not whether buyers and sellers can negotiate an adjustment between them but whether the state government should be obligated to accept and cooperate with such an adjustment.

PS When you terminate a phone service, with fixed charges paid in advance, typically the telco will pro-rate a refund. That seems fair to me.

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I’d prefer to pay zero taxes. Is fairness in the eye of the beholder then?

Consider.
Is it fair that a rural/regional NBN customer/consumer pay more for a lesser service than nearly every one else in Australia?
or
Is it fairer that every NBN customer in the city pays more so that every rural and regional NBN customer gets the same high speeds, low congestion and unlimited data for the same cost as a city service?

Land tax is simple. The more you own the more you pay. How it is applied is consistent. Is it fair in the way it is assessed? Is it a fair to tax land ownership? All taxes are unfair in some way. If you can get it changed as you suggest great. I don’t currently pay land tax. That to me is also fair.

I choose to live in a regional area. If I want to change the outcomes of NBN cost and service I have two chances, or I could set out to annoy by local Federal MHR until they cross the floor to vote against the LNP of which he is a member to fix the NBN. Is it fair that he must vote as the party ordains or risk loosing party censure and pre-selection?

Hope it goes well with your mission to change how land tax is assessed P for Person. I’d be happy to share your concern.

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[quote=“mark.mlmaths, post:14, topic:15095”]
Land tax is simple.[/quote]

Too simple.

[quote=“mark.mlmaths, post:14, topic:15095”]
The more you own the more you pay.[/quote]

The starting point for this discussion was that it is not fair that you pay land tax on something that you don’t own.

I understand that “fair” is hard to define and people will often disagree about what is “fair”.

[quote=“mark.mlmaths, post:14, topic:15095”]
Hope it goes well with your mission to change how land tax is assessed[/quote]

I did not initiate this topic. However I did agree with the person who did initiate this topic - and the person who provided the first response - that it is not fair.

I won’t be starting a mission to fix this. I understand that rich fat cats who own an “investment” property won’t get much sympathy. :slight_smile:

The situation outlined by the person who initiated this topic is not one that has ever applied to me personally.

[quote=“mark.mlmaths, post:14, topic:15095”]
NBN[/quote]

Best taken up here: https://choice.community/c/electronics-and-technology/nbn

There are always some questions over making an annual charge based on assets rather than income. However Land Tax is no different from Council Rates in that regard.

It is generally regarded that taxing real property is good for government because it is hard to hide real property in an offshore trust or move it around etc.

In Australia the states have somewhat limited power to apply taxes, so taxing real property can be the least worst option. It would, I think, be reasonable to suggest that the states are overly reliant on taxing real property.

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Totally agree that what is “fair” is hard to define or reach agreement about.

Perhaps a different way of asking the question and putting the topic might be:
Is there a better and more accurate way to assess land tax?
If you agree how might this me done and how do we change it?

The original poster asked - “How fair is this?”
The possible responses are infinite between - Totally fair through to mostly unfair to possibly illegal. Somethings in life are unfair to some of us - but still legal. So many differing degrees.

Land tax as currently applied is imperfect but provides an acceptable outcome (political majority agree). It is fair in that you know the rules in advance of purchasing any property that may be accessible for land tax. It is inequitable when compared between investors who may be more astute or lucky in timing purchases and sales than others.

The opening topic referred to an example of inequity on sale. There was no mention of the respective timing on original purchase of the same property. It may have been acquired just after the assessment date and avoided legally some land tax.Certainly that would be the most common scenario. Is it fair to ask for a pro-rata refund if you did not pay pro-rata for the untaxed period on purchase?

re NBN - I totally agree with your advice. I have joined in the topics relating to the NBN previously. I was hopefully taking a situation that I thought was able to illistrate that “fair” is often in conflict with other community needs/outcomes that treat customers differently.

Resolution is most commonly called “compromise”.
Land tax is no different - just bigger $$ signs. That it may be of a greater in value than other examples does not make it in my view any more unfair than an item of lesser value. Fairness is about more than just $$.

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[quote=“mark.mlmaths, post:16, topic:15095”]
Is there a better and more accurate way to assess land tax?[/quote]

Yes

[quote=“mark.mlmaths, post:16, topic:15095”]
If you agree, how might this be done[/quote]

Off the top of my head …

  • you pay the Land Tax for the whole year up front as per your situation at the start of the year (as now)
  • if you sell a property, the government recalculates your liability and pro-rates the days preceding the transaction at the old annual cost and the days following the transaction at the new annual cost - and works out a refund (if any)
  • the government does the same for the buyer - and works out a charge (if any)

Hence - no adjustment at settlement is needed and there is no privacy issue. This deals with the timing issue at purchase too i.e. makes that fair.

A completely different approach (simpler but not as fair):

  • forget about refunds or charges or anything else - just assess and pay Land Tax more frequently than annually e.g. quarterly or monthly (depending on how horrendous your bill is e.g. the person who said $14,000 annually is clearly a candidate to be assessed and pay monthly)

This retains some element of unfairness but reduces it proportionately.

A more radical approach is to scrap Land Tax as such and apply it to all property just like Council Rates. That allows an adjustment to be done at settlement and takes the government out of the transaction, and significantly simplifies the Land Tax system.

This would however jettison some potential government policy goals e.g. to discourage foreign ownership by charging foreigners a higher rate of Land Tax and e.g. to charge a Silvertail Tax i.e. higher rate for more expensive property.

I am not going to campaign to change this.

True but you will see that the first response says “former family home” and so the timing of the original purchase is not relevant and your text “in advance of purchasing any property that may be accessible for land tax” is problematic because that really means “in advance of purchasing any property” (because every property is potentially assessable for land tax in some future year, possibly years after you purchased the property even though you didn’t know it at the time).

I think you will find that this scenario is more common than you may believe.

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This position is understandable. I’d still ask - Equitably the date of transition of a property from owner occupier to other use/purpose for investment (eg rental) and hence subject to land tax should be on the same pro-rate basis if an adjustment is to be applied for land tax at disposal?

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Yes, definitely.

If you use the SRO web site to alter your exemptions (including but not limited to “principal place of residence”) then at the end of the day it should recalculate your liability, just as it would on the settlement of a purchase or sale of real estate. There may indeed be a correlation between the purchase or sale and the alteration to the exemptions.

All hypothetically speaking because I don’t expect that this change will happen in the real world.

As I commented above, a precursor to improvement in this area would be more timely notification of settlement.

As it happens, from July 1 this year, if you buy a new property then you are legally obliged to notify the Commonwealth government of the impending settlement and then to confirm the settlement when it happens (all done via the web, and most likely done for you by your conveyancer). Once the gremlins are out of that process, it could make sense to extend it to all property, in which case the settlement notification should be “same day” (or in any case timely), and more sophisticated Land Tax arrangements would become more feasible.

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