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Renters to be slugged $900 with land tax changes

By 1 July 2014 37

From today struggling Canberra renters will be forced to bear the brunt of ACT Labor’s land tax hikes with a $900 fixed charge as well as a percentage of the land value which will raise the government an additional $10 million this financial year. It will particularly affect units and is yet another attack by this government on housing affordability in the ACT and an unfair tax which hits the lowest end of the market hard, Shadow Treasurer Brendan Smyth said today.

“Andrew Barr is hiking land tax on units from today meaning those who are doing it tough will be forced to pay hundreds of dollars just to keep a roof over their heads. This is a fixed charge property owners will have to pass on,” Mr Smyth said.

“ACT Labor is driving up rates by 10 percent a year for people who own their own homes now the government will start slugging renters with extra costs.

“Because the government has maxed out the credit card on unaffordable and unwanted capital works projects ACT residents are being squeezed to the limit to pay for years of irresponsible economic management.

“Furthermore, mum and dad investors will find it harder to provide for their own futures with this land tax increase. It will add to the swathe of government regulations stopping investment in its tracks and driving it across the border.

“Andrew Barr needs to rethink this tax because he is hitting Canberra families when they are struggling enough at the moment,” Mr Smyth concluded.

(Brendan Smyth Media Release)

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37 Responses to
Renters to be slugged $900 with land tax changes
dungfungus 9:45 am
01 Jul 14
#1

Gee, thank goodness the ACT doesn’t have a budget emergency too!
I wonder how much land tax is in Singapore?

m_ratt 9:59 am
01 Jul 14
#2

What a load of b*llocks.
It is not possible for any such charges to be directly passed on to renters.
A landlord may be inclined to seek higher rent, however they can only get what the market is willing to pay. This is just another cost of holding an investment, which is irrelevant to any tenant.

Have interest rate decreases (on IP mortgages) been passed directly on to tenants? Of course not.

VYBerlinaV8_is_back 10:04 am
01 Jul 14
#3

Although the charges cannot be passed on directly, I’ll be putting more pressure on my property managers to increase the rent than I otherwise would. Normally it’s best to just let the market do its thing, but with costs like this I will do what I can to recover the funds.

patrick_keogh 10:22 am
01 Jul 14
#4

dungfungus said :

Gee, thank goodness the ACT doesn’t have a budget emergency too!
I wonder how much land tax is in Singapore?

In Singapore it is a function of rental value. For most properties it is 10%p.a. although as rent goes up so does the tax as a percentage. That is so much higher than in the ACT that it is no surprise that nobody lives in Singapore any more. Oh wait.

Maya123 11:07 am
01 Jul 14
#5

patrick_keogh said :

dungfungus said :

Gee, thank goodness the ACT doesn’t have a budget emergency too!
I wonder how much land tax is in Singapore?

In Singapore it is a function of rental value. For most properties it is 10%p.a. although as rent goes up so does the tax as a percentage. That is so much higher than in the ACT that it is no surprise that nobody lives in Singapore any more. Oh wait.

I don’t have a rental now, but when I did I paid more than 10% of my rental income on land tax, so more than is paid in Singapore. Ten percent of rental income sounds a fairer system to me. Here it is based on land value, not the value of the house, and therefore potential rental income, on similar blocks of land. So, a small, older, three bedroom house, maybe showing its age, will have a lower (more affordable) rent than a McMansion on the same block of land, but same land tax. Our land tax (and rates) encourages older, smaller houses to be replaced with oversized McMansions and rents to then rise and become less affordable.
Fortunately I bought my rental house in the last big slump and was rewarded as its value rose dramatically. This made up for low rents and high land tax.

Yman 11:38 am
01 Jul 14
#6

Landlords stand no chance to pass on the land tax cost in short term. It would be passed on in a longer term, say 1 year, but the price of investment property would reach another equilibrium in the same time. So it’s still a bad news for owners rather than tenants.

beejay76 11:56 am
01 Jul 14
#7

Standard tenancy agreement:

42 The lessor is responsible for the cost of the following:
(a) rates and taxes relating to the premises;
(b) services for which the lessor agrees to be responsible;
(c) services for which there is not a separate metering device so that amounts consumed
during the period of the tenancy cannot be accurately decided;
(d) all services up to the time of measurement or reading at the beginning of the tenancy;
(e) all services after reading or measurement at the end of the tenancy providing the
tenant has not made any use of the service after the reading.

This is the worst kind of misinformed crap. Shame on you, Canfan for blindly re-posting the kind of rubbish that undermines our democracy by allowing politicians to deliberately lie to the people. I’ll wager Mr Smyth *knows* what he is saying is incorrect and is saying it anyway. That would be the dictionary definition of a lie.

Ghettosmurf87 12:12 pm
01 Jul 14
#8

beejay76 said :

Standard tenancy agreement:

42 The lessor is responsible for the cost of the following:
(a) rates and taxes relating to the premises;
(b) services for which the lessor agrees to be responsible;
(c) services for which there is not a separate metering device so that amounts consumed
during the period of the tenancy cannot be accurately decided;
(d) all services up to the time of measurement or reading at the beginning of the tenancy;
(e) all services after reading or measurement at the end of the tenancy providing the
tenant has not made any use of the service after the reading.

This is the worst kind of misinformed crap. Shame on you, Canfan for blindly re-posting the kind of rubbish that undermines our democracy by allowing politicians to deliberately lie to the people. I’ll wager Mr Smyth *knows* what he is saying is incorrect and is saying it anyway. That would be the dictionary definition of a lie.

I’m no Brendan Smyth apologist, but just because a landlord is responsible for a cost, it doesn’t mean that the cost won’t be passed on to the tenant in the form of rent, it just means it won’t be a charge ON TOP OF rent, like electricity/water/etc.

A landlord recoups costs such as land tax/rates/repayments/unmetered bills/etc through the rent that they charge, to the extent that the market will allow them to.

Therefore, if there is scope to charge more in order to recoup new ownership costs and not lose your tenants, then by all means, landlords will do so. Any landlord, on negotiating a tencancy agreement, is entitled to set the price at whatever they so choose, it’s just that a tenant may not accept a new higher price if other landlords out there are not passing on the additional cost, but are instead absorbing it.

pierce 1:11 pm
01 Jul 14
#9

I’ve just been through the process of looking for a new rental house, being accepted for 3 out of 4 (the fourth had already gone). All of the agents offered to drop the rent at the merest hint of indecision.

Any landlord that thinks now is the time to raise rents might be in for a shock.

PS – A more respectable headline might have been “Renters to be slugged $900 with land tax charges – Smyth”. Unless of course, journalism now just means treating press releases as stories.

rommeldog56 1:11 pm
01 Jul 14
#10

Not owing an investment property, correct me if I am wrong, but wouldn’t these ACT Gov’t charges be tax deductiable for the landlord, from the ATO ?

If so, perhaps presents an interesting problem Federally too ?

How far will the Fed’s allow States to ramp up their revenue by introducing charges/taxes/levies/fees that are in part or full, claimable by the payee through the Fed’s Taxation process (eg. through negative gearing, income tax, etc) ?

Also, does this apply to commercial rents ? Impact on employment, etc ?

patrick_keogh 1:25 pm
01 Jul 14
#11

Price is a function of three variables: cost, supply and demand. If demand for rental property exceeds supply as it has done in most years in the last twenty, then price will be significantly higher than cost and more suppliers will enter the market until a new equilibrium is reached. Equilibrium is where the ROI is adequate, given the level of risk and a landlord will probably accept a level of return that is less than the stock market because the risk is lower.

If supply exceeds demand has it has done recently, then it would be reasonable to expect to see falling rental prices. The increase in tax will just result in the price falling less than it would have otherwise. Either way the market will stabilise at the level where supply and demand produce appropriate ROI.

Interestingly the BS press release wants to have it both ways: “a fixed charge property owners will have to pass on” and “mum and dad investors will find it harder to provide for their own futures with this land tax increase”.

Maya123 1:26 pm
01 Jul 14
#12

rommeldog56 said :

Not owing an investment property, correct me if I am wrong, but wouldn’t these ACT Gov’t charges be tax deductiable for the landlord, from the ATO ?

If so, perhaps presents an interesting problem Federally too ?

How far will the Fed’s allow States to ramp up their revenue by introducing charges/taxes/levies/fees that are in part or full, claimable by the payee through the Fed’s Taxation process (eg. through negative gearing, income tax, etc) ?

Also, does this apply to commercial rents ? Impact on employment, etc ?

A landlord/lady can claim Land tax and rates in their tax return.

dungfungus 1:28 pm
01 Jul 14
#13

rommeldog56 said :

Not owing an investment property, correct me if I am wrong, but wouldn’t these ACT Gov’t charges be tax deductiable for the landlord, from the ATO ?

If so, perhaps presents an interesting problem Federally too ?

How far will the Fed’s allow States to ramp up their revenue by introducing charges/taxes/levies/fees that are in part or full, claimable by the payee through the Fed’s Taxation process (eg. through negative gearing, income tax, etc) ?

Also, does this apply to commercial rents ? Impact on employment, etc ?

All commercial properties are assessed with land tax. If the property is rented the costs (like rates, water and electricity) are passed on to the tenant. It’s inflationary.
The $10 million Barr will collect will fund the GWS aerial ping pong team for another couple of years so it’s all in a good cause.

patrick_keogh 1:33 pm
01 Jul 14
#14

rommeldog56 said :

Not owing an investment property, correct me if I am wrong, but wouldn’t these ACT Gov’t charges be tax deductiable for the landlord, from the ATO ?

This is the heart of the matter. Our federal system has resulted in a system where the number one activity of both state and federal government is cost shifting. You see it every day in health, education, transport… every aspect of the portfolio where changes to public services are made with the specific intent of driving the consumer to services provided by the other level of government. So the ACT government will get a buck out of these new tax arrangements of which the landlord and tenant will end up paying around sixty cents and the commonwealth will have to pay the other forty cents through reduced tax receipts.

It would be funny if it wasn’t so pathetic, but you can hardly lay the blame at the feet of the ACT government any more than the other eight governments involved. They are all doing it. I have this terrible feeling that when Tones espouses greater independence for the states he hasn’t really grasped the impact this will have on commonwealth revenue.

bigred 4:46 pm
01 Jul 14
#15

I suspect Mr Barr may be about to see the limits of the land tax magic pudding. I predict that some landlords at the economical end of the market are likely to deploy their capital in other markets that provide better rates of return. This could trigger some shortages in some segments of the market. Brendan knows the EL1 second property owners will be very unhappy and senses some votes.

Secondly, as discussed elsewhere it is not like we are getting great outcomes from the money they get already. Why on earth should they get more to do a carney with?

Pandy 6:27 pm
01 Jul 14
#16

pierce said :

I’ve just been through the process of looking for a new rental house, being accepted for 3 out of 4 (the fourth had already gone). All of the agents offered to drop the rent at the merest hint of indecision.

Any landlord that thinks now is the time to raise rents might be in for a shock.

PS – A more respectable headline might have been “Renters to be slugged $900 with land tax charges – Smyth”. Unless of course, journalism now just means treating press releases as stories.

With jobs going in the PS making it harder to stay in the ACT, is stoopid IMHO.

Have you heard that trades are actually turning up before the allocated time, because of the dearth of public service jobs?

Have you heard how managers of employment companies are going back to the PS as APS 6s so as to place dinner on the table?

Obviously not Mr Barr.

HiddenDragon 6:31 pm
01 Jul 14
#17

rommeldog56 said :

Not owing an investment property, correct me if I am wrong, but wouldn’t these ACT Gov’t charges be tax deductiable for the landlord, from the ATO ?

If so, perhaps presents an interesting problem Federally too ?

How far will the Fed’s allow States to ramp up their revenue by introducing charges/taxes/levies/fees that are in part or full, claimable by the payee through the Fed’s Taxation process (eg. through negative gearing, income tax, etc) ?

Also, does this apply to commercial rents ? Impact on employment, etc ?

Both levels of government surely have regard to these issues as, presumably, does the Grants Commission (or whatever it’s called now) process. The promised White Paper on Federalism and the related tax review should also have relevant things to say – and might even provide a way out for ACT Labor (if they’re smart enough to take it).

On this broader point, I’ve always thought that one of the ironies of what’s being pursued in the ACT is that they are denying themselves (to the extent that they do, actually, reduce stamp duty) a slice of the capital gain on otherwise untaxed (by CGT) family homes – particularly, of course, the value of improvements and over-capitalised properties on cheapish blocks. I see it as ironic for the simple reason that many of the theorists, ideologues, zealots and just good, old-fashioned, feel-good redistributionists who are cheering on rapidly rising rates (land tax) would also see it as an affront to fairness and economic efficiency that the family home is not caught in the CGT net (a fact which helps to explain some of the more outlandish figures about the cost of tax concessions in Australia).

Tezza7420 7:34 pm
01 Jul 14
#18

Try paying land tax on a Mr Fluffy property. Assuming anyone would even rent one it would be pretty ironic paying tax that would easily be more than the rent received.

arescarti42 9:04 pm
01 Jul 14
#19

m_ratt said :

What a load of b*llocks.
It is not possible for any such charges to be directly passed on to renters.
A landlord may be inclined to seek higher rent, however they can only get what the market is willing to pay. This is just another cost of holding an investment, which is irrelevant to any tenant.

Have interest rate decreases (on IP mortgages) been passed directly on to tenants? Of course not.

Exactly, rents are determined by market supply and demand, not by the costs experienced by landlords.

Yield is totally irrelevant for a majority of landlords anyway, as they’re speculating on capital gains to put them in the black.

There’s absolutely no chance of the additional land tax being passed on to renters.

VYBerlinaV8_is_back said :

Although the charges cannot be passed on directly, I’ll be putting more pressure on my property managers to increase the rent than I otherwise would. Normally it’s best to just let the market do its thing, but with costs like this I will do what I can to recover the funds.

Unless you have a very unique property or a very uninformed tenant, your property will be sitting vacant for months in this market.

urchin 10:21 pm
01 Jul 14
#20

VYBerlinaV8_is_back said :

Although the charges cannot be passed on directly, I’ll be putting more pressure on my property managers to increase the rent than I otherwise would. Normally it’s best to just let the market do its thing, but with costs like this I will do what I can to recover the funds.

But you don’t get to just raise rent however much you want. As you are no doubt aware, Landlords are only able to raise rent 1.2 times CPI increase for housing over the relevant period unless substantial works have been done to improve the value of the property.

Looking at calculator on the ACT tenant’s union website, if a contract had been signed or rent last raised one year ago for $500/week, you would be able to raise that rent to a whopping… $502.33

With rents falling in most parts of canberra these days landlords should be happy to keep people paying the same rent. if they scare tenants away and have to readvertise their property will likely sit vacant for some time before being rented out for less.

rommeldog56 7:00 am
02 Jul 14
#21

Ultimately, decisions such as this WILL affect renters. But it may take a while. Scenario:

Landlords/investors ROI is reduced. Maybe they can get getter ROI elsewhere. They sell their rental property in ACT. Less rental stock = increased rents. Though with the surplus of units on the market now, this will probably take a while to flow through.

Hate them or love them, while people want/have to rent, landlords are a necessity.

IMHO, lower rents are good but history shown that this is a cycle and higher rents will return – thats when this new tax/revenue raising measure from the ACT Gov’t WILL bite renters. So, when that happens, where will that leave the homeless, aged, pensioners, disabled, low income earners and other disadvantaged groups ?

davo101 8:07 am
02 Jul 14
#22

Mr Barr’s response is here.

dungfungus 8:25 am
02 Jul 14
#23

Andrew Barr advertises his ignorance in today’s Canberra Times by stating “investors can claim the $900 as a tax deduction”.
That may be so in some cases but a lot of investment properties are now owned by SMSFs in pension mode and they don’t pay tax.
There is nothing more useless than a tax deduction when there is no tax to pay.
I can already see our socialists (like Andrew Leigh and Richard Denniss) rubbing their hands with glee.

VYBerlinaV8_is_back 9:23 am
02 Jul 14
#24

urchin said :

VYBerlinaV8_is_back said :

Although the charges cannot be passed on directly, I’ll be putting more pressure on my property managers to increase the rent than I otherwise would. Normally it’s best to just let the market do its thing, but with costs like this I will do what I can to recover the funds.

But you don’t get to just raise rent however much you want. As you are no doubt aware, Landlords are only able to raise rent 1.2 times CPI increase for housing over the relevant period unless substantial works have been done to improve the value of the property.

Looking at calculator on the ACT tenant’s union website, if a contract had been signed or rent last raised one year ago for $500/week, you would be able to raise that rent to a whopping… $502.33

With rents falling in most parts of canberra these days landlords should be happy to keep people paying the same rent. if they scare tenants away and have to readvertise their property will likely sit vacant for some time before being rented out for less.

I’ve noticed that times when rules change are a great opportunity to do some cosmetic renovations. Did you know that you can evict a tenant (with appropriate notice) to renovate? When the property comes back on the rental market, the rent is reset to market rate (for a renovated property).

The Tenant’s Union does some good things, but don’t underestimate the ability of resourceful people to get what they want.

Of course, some care is needed to balance the commercial reality, but please don’t think for a moment that tenants have the upper hand here.

VYBerlinaV8_is_back 9:25 am
02 Jul 14
#25

arescarti42 said :

m_ratt said :

What a load of b*llocks.
It is not possible for any such charges to be directly passed on to renters.
A landlord may be inclined to seek higher rent, however they can only get what the market is willing to pay. This is just another cost of holding an investment, which is irrelevant to any tenant.

Have interest rate decreases (on IP mortgages) been passed directly on to tenants? Of course not.

Exactly, rents are determined by market supply and demand, not by the costs experienced by landlords.

Yield is totally irrelevant for a majority of landlords anyway, as they’re speculating on capital gains to put them in the black.

There’s absolutely no chance of the additional land tax being passed on to renters.

VYBerlinaV8_is_back said :

Although the charges cannot be passed on directly, I’ll be putting more pressure on my property managers to increase the rent than I otherwise would. Normally it’s best to just let the market do its thing, but with costs like this I will do what I can to recover the funds.

Unless you have a very unique property or a very uninformed tenant, your property will be sitting vacant for months in this market.

And yet, curiously, two of my last four rental renewals had rent increases…

watto23 4:23 pm
02 Jul 14
#26

rommeldog56 said :

Ultimately, decisions such as this WILL affect renters. But it may take a while. Scenario:

Landlords/investors ROI is reduced.

Maybe they can get getter ROI elsewhere. They sell their rental property in ACT.

Less rental stock = increased rents. Though with the surplus of units on the market now, this will probably take a while to flow through.

Hate them or love them, while people want/have to rent, landlords are a necessity.

IMHO, lower rents are good but history shown that this is a cycle and higher rents will return – thats when this new tax/revenue raising measure from the ACT Gov’t WILL bite renters. So, when that happens, where will that leave the homeless, aged, pensioners, disabled, low income earners and other disadvantaged groups ?

There will always be winners and losers, but if rental properties are put up for sale the more property for sale on the market, usually the lower the selling price will be. Some renters may be able to afford a place to buy. Its all political spin. Yes it would be nice for the govt to not charge the fee, but its not all doom and gloom, if its as bad as what people think it is to protect their own self interests then maybe it will actually be good for many others.

However as someone who has a fairly well paid off mortgage, a drop in housing values would affect me, If I wanted to sell.

JC 5:30 pm
02 Jul 14
#27

I have a question for Mr Smyth. What unwanted capital works program has the government maxed out the credit card on? Surely you are not talking about light rail are you? If so then your being a tad melodramatic as hardly anything has been spent on it yet, certainly not enough to max out the credit card anyway.

Also your party does have a history of not spending on much needed infrastructure, leaving it to Labor and then complaining about it. So pull ya head in and do something constructive rather than just whinge and whine in the hope people may vote for your lot.

For a start please tell us how you will continue to run this town if you are in power. Where are you going to get the money from? You can only cut so much from the budget, which means somewhere along the lines people need to pay more, in which case how exactly do you propose to raise the money required?

Sandman 7:50 pm
02 Jul 14
#28

Ghettosmurf87 said :

I’m no Brendan Smyth apologist, but just because a landlord is responsible for a cost, it doesn’t mean that the cost won’t be passed on to the tenant in the form of rent, it just means it won’t be a charge ON TOP OF rent, like electricity/water/etc.

A landlord recoups costs such as land tax/rates/repayments/unmetered bills/etc through the rent that they charge, to the extent that the market will allow them to.

Therefore, if there is scope to charge more in order to recoup new ownership costs and not lose your tenants, then by all means, landlords will do so. Any landlord, on negotiating a tencancy agreement, is entitled to set the price at whatever they so choose, it’s just that a tenant may not accept a new higher price if other landlords out there are not passing on the additional cost, but are instead absorbing it.

Not really. A landlord will try to get the maximum possible no matter what. All this does is cut into their profits. The market dictates the rental prices. I know of places that have been empty for 12 months because the owners aren’t willing to drop their price to a realistic level. They’re too used to the good old days of maximum returns and can’t handle the realistic levels.

Queen_of_the_Bun 8:37 pm
02 Jul 14
#29

Pandy said :

pierce said :

I’ve just been through the process of looking for a new rental house, being accepted for 3 out of 4 (the fourth had already gone). All of the agents offered to drop the rent at the merest hint of indecision.

Any landlord that thinks now is the time to raise rents might be in for a shock.

PS – A more respectable headline might have been “Renters to be slugged $900 with land tax charges – Smyth”. Unless of course, journalism now just means treating press releases as stories.

With jobs going in the PS making it harder to stay in the ACT, is stoopid IMHO.

Have you heard that trades are actually turning up before the allocated time, because of the dearth of public service jobs?

Have you heard how managers of employment companies are going back to the PS as APS 6s so as to place dinner on the table?

Obviously not Mr Barr.

No, as someone who is renovating a property at the moment, I have certainly not heard about tradies turning up early or even on time. Please provide supporting information.

urchin 9:50 pm
02 Jul 14
#30

VYBerlinaV8_is_back said :

urchin said :

VYBerlinaV8_is_back said :

Although the charges cannot be passed on directly, I’ll be putting more pressure on my property managers to increase the rent than I otherwise would. Normally it’s best to just let the market do its thing, but with costs like this I will do what I can to recover the funds.

But you don’t get to just raise rent however much you want. As you are no doubt aware, Landlords are only able to raise rent 1.2 times CPI increase for housing over the relevant period unless substantial works have been done to improve the value of the property.

Looking at calculator on the ACT tenant’s union website, if a contract had been signed or rent last raised one year ago for $500/week, you would be able to raise that rent to a whopping… $502.33

With rents falling in most parts of canberra these days landlords should be happy to keep people paying the same rent. if they scare tenants away and have to readvertise their property will likely sit vacant for some time before being rented out for less.

I’ve noticed that times when rules change are a great opportunity to do some cosmetic renovations. Did you know that you can evict a tenant (with appropriate notice) to renovate? When the property comes back on the rental market, the rent is reset to market rate (for a renovated property).

The Tenant’s Union does some good things, but don’t underestimate the ability of resourceful people to get what they want.

Of course, some care is needed to balance the commercial reality, but please don’t think for a moment that tenants have the upper hand here.

sure you can kick a long term, stable tenant out, let the apartment sit vacant for a month or so while you “renovate” put it back on the market (paying more agent’s fees) let it sit empty for another month and then maybe rent it out for the same or less than you were renting it before.

that’s how PI’s make money, right? by losing as much money as they can? sweet, sweet tax write-offs…

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