Do you pay both land tax and rates for IP in Canberra?

Hi
We are considering renting out our current PPOR in Canberra. Would we be liable for both rates and land tax if we do this? I have looked on the ACT Revenue website and their calculator shows a rates calculation of $2600 (which is what we currently pay) and land tax of $3615. Does this mean we would be liable to pay a total of $6215 per year? Or is it only the land tax we would need to pay?
Thank you!

 

Land tax | ACT Revenue Office - Website

Land tax applies to ACT properties that are not your principal place of residence. This includes both rented properties and those which are vacant, properties owned as a trustee, and rented dwellings on the same property as your home (such as a granny flat).

When i sold my rental and it was sitting empty, i still had to pay land tax with no rent coming in

 

Expect the worst if you are in ACT. People there have lost the right to complain. Its seller's market there I would be cashing in by selling it.

 

Thanks for your replies. What are the advantages of having an investment property in the ACT if the rates and land taxes are so high? We currently have IP's in NSW and pay no land tax and lower rates

 

Main advantage is in ACT prices always go up. You can compare historical trends in last 40 years. ACT properties are the last to fall and first to rise as compared to national average. Its tightly controlled and highly regulated market and authorities control the fate of the property not the free market. So as an investor you are protected from downturns and recessions. There are predictions that Canberra might topple Sydney in next 5 years as most expensive place to live in Australia.

 

It's an artificial market subject to government intervention & manipulation. If the government of the day decides that it will cut the number of mandarines in the ACT or relocated parliament to WFH or Manis Island Iso bubble the market will resemble what it is, a one horse country town.

 

Land tax is lower than nsw

 

But if the state reforms the NSW stamp duty system, NSW rates will drop also, maybe, possibly.

 

That's a big IF

 

Hi Michele. I hold several investment properties in Canberra and have held them for the past 10 years or so and i live here.
- Yes you will need to pay rates AND land tax. As well as property manager fees (5-8%), water charges (around $750/annum),insurance (around $1,200 per annum for a house) and strata fees (if it's a townhouse or unit). Holding costs in the ACT are very high, however this is balanced out by very high rent and rent usually rises a little each year. Vacancy rates are very low, so if your property is reasonably nice it will rent very quickly. Despite the very high holding costs, many properties are cashflow neutral or positive due to the high rents and tax incentives. It will depend on how big your mortgage is and how many tax incentives you are eligible for - you should seek advice from your accountant or do some research to understand negative gearing and tax refunds.
- I agree with another post here that it is a great time to sell in Canberra right now. The market has risen 20% the past year and 7.5% per annum over the past 10 years (both for detached houses). Good units and townhouses have averaged around 3.5% capital growth per annum the past 10 years and right now due to the steep rise in houses, quality units and townhouses are in high demand and asking prices have risen. It's always very difficult to predict the peak of the market anywhere but if i had to guess i would say for houses we are hitting near the peak now.
- Canberra may be a one horse town (being reliant on 65,000 public service jobs) and tightly controlled with govt regulations, but it has been like this forever and it hasn't affected the market negatively at all. I can't see the public service being drastically cut - and whenever a govt does cut PS jobs it usually adds them back somewhere down the line in another dept. The population of Canberra continues to grow and it's a very liveable city as you know. Detached houses in Canberra have performed better than any other capital city in Australia the past 20 years (returning 7.35% growth per annum for this entire period). The market may cool off a bit now but in 20 years in my opinion we will be looking back and we will see a similar growth rate for detached houses as we have the past 20 years.
Todd

 

No stamp duty (as I understand it), due to the other taxes you have mentioned

 

Stamp duty in Act applies to a purchase - to the transfer of a lease. This is why it might be deductible.

 

Ah that’s what I was thinking, deductible but still applies. Lots of taxes everywhere!!
Thanks @Terry_w

 

All land in the ACT is leasehold, so technically owned by the Crown and leased for 99 years. In a practical sense though it's no different to elsewhere, your lease can be bought and sold as normal, and at the end of the 99 year lease it's just extended for another 99 years. However because of the leasehold system we're able to claim the stamp duty as an immediate tax deduction for investment properties.

For high income earners this can be a big plus in the year of purchase. The downside is yes we pay slightly higher rates and land taxes although in my experience the higher rents/yields and lower vacancies in the ACT make up for this. Although these taxes will progressively increase over the coming years as stamp duty phases out altogether:
Stamp duty: What other states can learn from the ACT’s moves to axe it (allhomes.com.au)

One thing to consider, if you rent out your PPOR you might be liable for some CGT depending on when you sell. Straight from my bookmarks:
Tax Tip 23: The 6 year Absent from Main Residence Rule - PropertyChat
Tax Tip 259: Timing of the 6 year Rule – when does it start - PropertyChat

 

ACT land taxes etc all assist to pay for the major works around the national capital. It looks the way it does due to these taxes and a lot to mow and garden. And their GST revenue must have taken a battering with no year 6 school excusrions keeping the motels and hotels filled.

The article from allhomes reminds me of the pre-GST state promises to cut many forms of taxes when GST started. Bank accounts debit tax, bank duty on deposits and duty on mortgages and share transfers.... The lesson here is sometimes the appeal of the revenue gets in the way. It took NSW 16 years aftrrer the promised date to abolish some duty. I see the promises about the new NSW duty proposal (annual land tax) and what they anounced and what was drafted are very different.....Payroll tax has still not been repealed despite the original promise when GST was framed. Now all states refer to GST as "shrinking" despite it being self indexing !! The problem is we exempt too many basics and export billions which has no GST. Me thinks China and others should start paying GST on unprocessed minerals and commodities.

Notice noboy has ever said...Lets reduce GST. Its easier to keep the taxes that were once promised to be removed. Everyone forgot.
Timeline: Who's said what about the Goods and Services Tax