More than 400,000 Victorians who run a small business or an Airbnb from the family home have been hit with hefty land tax bills for the first time as State Government changes, designed to rein in debt, kick in.
The family home has always been exempted from land tax so long as business income derived from it is less than $30,000 – set by a ruling in 2012 – and the value of the property is below a certain threshold.
Even when more than $30,000 income was earned, owner-occupied homes have typically been exempted from land tax because the estimated value of the part of the property being used to derive the income – for example the family garage or a study – was worth less than $300,000.
The land tax change has hit Airbnb hosts, people with businesses selling on eBay and Shopify, startups being run from home and health professionals operating from a home studio.
The Victorian Labor government changed land tax thresholds from 2024, reducing level at which land tax kicks in from $300,000 to $50,000.
The State Revenue Office has been data matching Australian Taxation Office records connected to the family home over the past five years and applying the new rules and has now started handing out the first wave of new land tax bills.
The combination of rising house prices, cost-of-living pressures and greater acceptance of working from home has meant more people run businesses from home or generate income using Airbnb than previously.
Under the new tax rules, if the unimproved land value of a home is $1 million and business activities generate more than $30,000 from 10 per cent of the land, the taxable land is now $100,000 and draws a tax bill of $975 where previously it would have been exempt. The rate is higher, up to a maximum of 2.65 per cent ($2,650 extra), if the taxpayer own multiple properties.
The combination of the increases in unimproved land values, the reduced $50,000 land value threshold and growth of Airbnb and home-based businesses means we are now seeing people who have been generating income from their home being hit with surprise land tax audits going back for up to five years.
Commentators are suggesting that it simply amounts to a tax grab for a State where net debt is projected to reach $188 billion by 2028.
This cynical ‘bottom of the barrel’ approach to revenue raising will only punish mum and dads seeking to innovate and provide a living for their families.
The State Government also recently introduced a 7.5 per cent levy on short-stay accommodation for platforms like Airbnb and Stayz which began on January 1, 2025, although that will not apply to primary places of residence.
Many property investors and/or owners are hurting. We are finding that many home buyers are looking to sell because they can’t afford to keep their home and pay land tax bills.
The various changes are also certainly beginning to stifle innovation and businesses. Rightly, many entrepreneurs start from home, often in a spare room or garage, long before they have the resources to rent commercial space.
Simply said, taxing Victorians who had started a side business at home, in order to pay the State Government’s debt, seems unfair and un-Australian.
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