Real estate Sydney, NSW: Big land tax hit coming for homeowners

Homeowners are set to be taxed even further, as the NSW government moves to charge a property levy based on improved capital values, rather than the unimproved valuations.

Homeowners are set to be taxed even further, as the NSW government moves to charge a property levy based on improved capital values, rather than the unimproved valuations. Picture NCA NewsWire / Seb Haggett

Shifting NSW land valuations to being based on improved capital values, rather than the unimproved valuations has been foreshadowed by the NSW premier, Dominic Perrottet, but it won’t be happening soon.

The unexpected announcement came when the premier was questioned on 2GB by a NSW south coast holiday home owner whose 2023 land valuation was double the prior year. The caller, Arthur from Huskisson, advised his land value had spiked from $800,000 to $1.6m in a year.

He’d owned the holiday shack for 40 years, and will now be among the 1000s who will get a land tax bill for the first time since the Carr/Egan era.

“There are always challenges when it comes to land values,” Perrottet acknowledged.

He was asked by broadcaster Ben Fordham if NSW was looking at the fairer systems such as in Victoria, which uses both improved and unimproved values.

“We are,” he said.

Shifting NSW land valuations to being based on improved capital values, rather than the unimproved valuations has been foreshadowed by the NSW premier, Dominic Perrottet Picture: NCA NewsWire/ Tim Hunter.

“What I tasked when I was Treasurer was some work to be conducted on how we can improve the system and I think that will take out the fluctuations.

“It can’t happen overnight,” he said.

Meanwhile the next NSW government will enjoy a land tax revenue windfall after land values jumped 26 per cent to $2.8 trillion in the year to July 2022, according to the recent report from the NSW Valuer-General.

The NSW valuations are determined on unimproved land, which does not take into consideration any house or built structure, as opposed to the improved value which reflects its all up market value.

“But to Arthur’s question it does become a challenge,” Perrottet said.

“We saw this when we were doing the work in relation to the emergency services levy.” he said.

“The biggest challenge we found was that in NSW land values are conducted on unimproved values and that creates significant fluctuations.

“I do think we need to move to an improved valuation system,” he said.

Another valuation example was recently reported by The Sunday Telegraph in relation to the Eurobodalla home of Michael “Flea” Balzary of the Red Hot Chili Peppers whose latest land valuation was $1.65m, up from its previous $853,000 annual valuation.

Historically second homeowners have ignored hefty rises in values, rather than lodge objections, as they still sat below the land tax threshold, but it is expected the recent hefty rises will see many more second homeowners objecting to paying land tax.

Premier Perrottet has a record of campaigning within government for a broadbased introduction of land taxes, in the context of removing stamp duty, but concerns have been raised that the current unimproved valuation system was systematically flawed.

Then premier Gladys Berejiklian scrapped a plan in 2017 when the treasurer tried to link an emergency services levy to unimproved land values to fund fire and emergency services.

The latest mooted change could have an impact on the First Home Buyer Choice scheme for first time buyers if it came to being legislated.