Retirement all sorted, then that tax came back

Jonathan Chancellor and Jordan Baker, Sydney Morning Herald, 21 December 2005

PENSIONER Bruce Wells and his wife Robyn have always intended to retire to their North Avoca holiday house, which Mr Wells bought for $30,000 when he was single and living with his parents in the 1970s.

They are fond of the old weatherboard shack on stilts, the neighbours are lovely and, as Mr Wells says, it's "a beaut spot". But as their land tax bill continues to climb - it will hit $1664 next year - suddenly the property has become a burden.

Mr Wells and his wife are among 440,000 land owners who might have presumed they had paid the tax just once, during the short-lived universal land tax period which netted 550,000 investors and second-home owners.

The universal tax, under which all such property owners paid on a progressive scale up to 1.4 per cent of their official land valuation each year, lasted just 12 months after Michael Egan introduced it in his last budget as NSW treasurer in 2004. It was scrapped in May in the only budget of his successor, Andrew Refshauge, which reintroduced a threshold - at a land valuation of $330,000 - before property owners had to pay the tax, albeit at the higher, flat rate of 1.7 per cent.

This led many to believe they had escaped being stung a second time. But some, like the Wells family, have now been caught in the land tax backswell, because the new threshold has failed to keep pace with the indexation of land valuations. The threshold would be about $390,000 had there been no interruption to the system of raising the tax threshold in line with the statewide median rise in land valuations.

The Office of State Revenue expects 176,000 land tax payers will be sent bills early next year, up from 110,000 who paid under the previous indexed threshold system. Some of the 66,000 second timers won't pay as much tax as their first bill. But others, like the Wellses, will pay more because the valuation of their holiday home land has risen by 15 per cent, even though Central Coast house prices are falling.

When he realised he would have to pay $1664 in 2006, Mr Wells's reaction was: "Here we go again. When you reach 60 and you have been around for a long time ... you think, 'They're at it again.' You just get very cynical about the whole thing."

In 2003 the official valuation of the Wellses' Bradleys Road house was below the then threshold of $317,000, so they didn't pay anything. A year later, with the house valued at $374,000, their bill was $1496. Now, faced with paying another $168, Mr Wells is unsure of his options. The former mining engineer and Vietnam veteran lives at Kings Langley with his wife, a librarian.

Could they turn the North Avoca block into a dual occupancy, thereby reducing their land tax exposure? Not an option under local zoning, says one real estate agent.

"I don't know what I will do," Mr Wells said.

The State Government forecasts it will receive $1.63 billion in land tax payments for 2006. Under the new tax rate of 1.7 per cent, that is a good increase on the $1.59 billion it collected under the 12 months of universal land tax in 2004-05.

Copyright © 2010 David Landa Stewart

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