About 300,000 Victorians who use negative gearing could claim land tax hikes as deductions | Victorian politics

Daniel Andrews has rejected claims a new levy on property investors will lead to rent increases, urging those who use negative gearing to instead claim the expense through the federal tax system.

Tuesday’s Victorian budget detailed several measures to repay $31.5bn worth of funds borrowed by the state government during the pandemic, including additional land tax charges forecast to affect about 860,000 property investors.

According to the most recent data from the Australian Tax Office, about 35% of these investors will be able to claim the expense under negative gearing arrangements overseen by the federal government.

The data, from the 2019/20 financial year, shows 304,942 individuals in Victoria were negatively gearing their investment properties. Negative gearing allows property investors who make a loss to reduce the tax they pay on other income.

The premier on Wednesday said the expanded land tax – set to come into effect in January 2024 – was “fully tax deductible” for Victorians who negatively gear and urged them to seek the benefit.

“I’d encourage anybody who can lawfully, legally make claims against that federal tax system to do so. I’m sure that accountants will provide advice to that end,” Andrews said.

“It does depend on the individual circumstances, how you have things structured, but those costs are tax deductible. That’s the advice I have and I’m sure that people will make those claims.”

From January 2024, property investors will face additional land tax charges, with landholdings worth over $300,000 to pay a $975 fee plus 0.1% of the total land value. Family homes will be exempt from the changes.

Andrews denied the new tax would be passed on to renters, arguing the lack of supply was to blame for soaring rents and that “real estate agents and some landlords [are] essentially running an auction” as a result.

“They can tell you there’s not enough supply, and that’s why we need to make better decisions and make them faster,” Andrews said.

He flagged measures to boost housing supply will be announced in the coming months.

But the opposition leader, John Pesutto, said he had no doubt landlords would pass on the higher costs to renters.

“Tax deductions don’t always come in a timely way,” he said. “They will pass the costs they bear, in terms of higher land tax, on to renters. Renters should not be paying the price for the Labor government’s incompetence.”

He accused the state government of “cost-shifting”, given the federal government will now have to foot the bill for the additional expenses claimed at tax time.

The state treasurer, Tim Pallas, on Wednesday confirmed he did not discuss the particulars of the budget with his federal counterpart, Jim Chalmers.

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“We didn’t go to the specific nature of the government’s tax changes,” Pallas told reporters.

“The federal treasurer has been telling the nation that we need to do more on tax reform. Well, we just delivered it in spades.”

A spokesperson for Chalmers said state governments were responsible “for their own revenue decisions”.

“Any impact on the commonwealth – whether positive or negative – will be considered as part of updates to our budget forecasts in the usual way,” the spokesperson said.

Pallas also said the new tax, which will cost investors an average of $1,300 a year – or $3.50 a day – for the next decade is far less than how much land appreciates over time.

“Over the last 10 years, an average property will have appreciated by 84%. The appreciation day by day on the value of that property is $230 a day,” Pallas told a post-budget luncheon.

The treasurer also acknowledged the rental affordability crisis, saying he was open to the possibility of a cap on increase but definitely ruled out a freeze, describing the concept as a “massive distortion of the market”.

“But I do think there has to be a point at which the community says, ‘This has gone beyond reason … some of the poorest people who are not asset rich at all are getting encumbered with cost,” Pallas said.

“One in three Victoria households rent and they do need and deserve the attention and support.”

  • Additional reporting by Paul Karp

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