Linda thought she was doing the right thing building a granny flat, then she was charged land tax (2024)

For eight years, Linda Ryan's elderly mother has lived in a granny flat in her backyard in Victoria's east.

Her mother, Mary Hey, purchased the unit to go on to the block of land in Lakes Entrance as an alternative to living in an aged care home, and so that her daughter could help care for her.

But despite the granny flat not being an investment — and it being on the one block which is also a principal place of residence (PPR) — Ms Ryan received a $500 land tax bill this year.

"It's extremely unfair. Life's tough enough as it is. This was the last straw," Ms Ryan said.

"That was a bit of a shock because I thought that tax was intended for people who had a second block of land or holiday houses. We've only got the one — it's the one title.

"[It's] not subdivided at all — it's our land, all we agreed to was to have the Dependent Persons Unit put onto our land for the length of time that Mum requires it."

The Victorian government charges people with land tax annually on all land, with a value equal to, or exceeding $50,000, other than their home.

The East Gippsland Shire Council valued the site at $2,000 from 2017 in order to charge separate council rates to Ms Hey and Ms Ryan.

But, in 2023, the site valuation jumped to $55,000, and last month, Ms Ryan received a land tax bill from the State Revenue Office.

'I thought we were helping the government'

The state government introduced a COVID Debt Repayment Plan in its 2023-24 State Budget. It reduced the threshold for total taxable value of landholdings from a minimum of $300,000 to $50,000.

"I thought we were helping out by doing what I thought the government wanted us to do — that's to prevent older people from having to go into nursing homes," Ms Ryan said.

The Victorian government has been pushing for people to build a granny flat as part of its Housing Statement, even removing the need for planning permits in most cases.

Ms Ryan said she had tried to apply for an exemption to the land tax. She was in contact with the State Revenue Office but not given a solution.

"When I was at the council looking into this, they went ahead and with my permission tried to do an exemption. But it was a drop-down form and we couldn't find any way of actually stating our case on there," she said.

A Victorian government spokesperson did not comment on Ms Ryan's case but said land tax applied to owners of investment properties or holiday homes.

The government recommended those customers who believed they had been incorrectly issued a land tax assessment to contact the State Revenue Office directly.

"Land tax does not apply to a granny flat on the same title as someone's home, unless they derive material rental income from it," the spokesperson said.

Opposition receives multiple complaints

Nationals member for Gippsland East, Tim Bull, said his office had been contacted by multiple people in similar positions to Ms Ryan, who say they had been taxed unfairly on their PPR.

"We're treating them on a case-by-case basis and writing to the government to try and get those anomalies rectified," Mr Bull said.

"It goes against the philosophy of the government's policy of aging safely at home and taking pressure off our healthcare system by supporting families to look after their loved ones.

"So, we're saying that with one hand — and then we're increasing taxes and making it tougher for them on the other."

Mr Bull said he believed the issue was due to councils having granny flats on separate titles in order to charge rates separately.

"Having said that, our council has been quite proactive in trying to assist these people," he said.

"[These families] are taking the burden off government, and they're taking the burden off our aged-care system.

"To then turn around and ask them to pay more when really they're doing society a favour in some regards, it's just wrong."

Fuelling the housing crisis

Housing Industry Association Victorian executive director, Keith Ryan, said he hoped the government would review these cases quickly, amid the ongoing housing crisis.

"It would be a powerful disincentive for some people to have a DPU or potentially a granny flat, or something similar, put on their land," Mr Ryan said.

"So, we would like to think that we can convince the government that this matter should be resolved quickly."

Monash University senior lecturer in economics, Isaac Gross, said it would be a simpler approach for the government to tax all land, including PPRs.

"An economist's answer would be, 'Well maybe we should just remove the complexity altogether, and tax all lands'," Dr Gross said.

"And that way you don't have this complicated set of rules about who exactly is a dependent granny flat and who's a separate house."

Dr Gross said this method would benefit people if other taxes were also reduced in time.

"That's something that Canberra has done in the ACT, so they've reduced or eliminated all stamp duty and in return, it increased land tax to cover every household," he said.