Nothing set and forget about property investment

Nothing set and forget about property investment
Nothing set and forget about property investment

Property ownership is taxing.

It emerged last week that the pop star Guy Sebastian has put at risk his Los Angeles investment apartment after overlooking his US land tax obligations.

He could be in danger of losing the two bedroom 1960s condo after being delinquent in paying the taxes for the past seven years.

The US authorities are going to sell it on October 22, unless he pays up. Official records show he has been in default since 2011.

The former Australian Idol advised it had come about inadvertently after the bills had been redirected to Olympian Ian Thorpe's US nearby pad, as he had been briefly staying at Thorpe's place.

But all these land tax notices went unnoticed, and then Thorpe sold the house, so the letters never got back to Sebastian.

He also was naively unaware he had to pay land tax on the US property which cost $268,500 in 2010.

"I didn’t know you had to pay land tax for an apartment," he told Kyle and Jackie O's radio show.

There is nothing set and forget about property investment, here in Sydney, elsewhere in Australia or overseas.

Indeed there are onerous administrative burdens that come with ownership, for own occupation and especially for investment.

And property is increasingly becoming a revenue jackpot for governments. 

The Australian Bureau of Statistics (ABS) recently released data revealing that 48.7% of local and state government taxation revenue comes from property taxes.

The data showed these two levels of government collect a record $40 billion annually in taxes from property buyers and owners.

By comparison, they collected $21 billion in taxes from employers.

With home values beginning to rise in mid-2012, taxes such as land tax, municipal rates and stamp duty on conveyances have all been on the increase.

Of the $40 billion in national property related tax revenue, some 40% came from municipal rates and 36% came from stamp duties on conveyances. Land tax was the other sizeable contributor to taxing accounting for 17% of revenue.

Property related tax revenue is only collected by these two levels of government on those who own properties. While our family homes are generally exempt from Federal tax, if you rent out part or all of it you must include the income in your tax return and you may have to pay capital gains tax when you sell it.

Replacing stamp duty with a blanket land tax would be unpopular but I see it as inevitable. 

Cameron Kusher, CoreLogic RP Data’s senior research analyst, has calculated a blanket land tax to cover just the $16 billion in stamp duty revenue, would see every residential dwelling having to pay $1,700 annually based on the ABS estimate of around 9.4 million residential dwellings. 

The issue of course is that governments are always looking to constantly grow their revenues. And property is seemingly the easiest of pickings given the perceived wealth benefits enjoyed through the decades of ownership.

This article first appeared in the Daily Telegraph. 

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

Tags: 
Taxation Property Ownership

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