The Council Rates Property Tax Rort - The Tax On Property People Don't Own | Knowledge is Power
US States and other countries' local authorities charge 'rates' on properties people don't own. If someone has a 90% mortgage on their home, 3% tax on the value = 30% of their equity PAYABLE PER YEAR.
If someone has a $1,000,000 home with a 90% mortgage ($900,000), their equity in the home is $100,000.
If they are charged a 3% tax on the total value of the home ($30,000), that tax amount represents 30% of their equity in that home.
The Breakdown
Home Value: $1,000,000
Mortgage (90%): $900,000
Equity ($1M - $900k): $100,000
Tax Amount (3% of $1M): $30,000
Tax as % of Equity (Wealth): ($30,000/$100, 000) x 100 = 30%
This scenario highlights why the “gross” nature of a property tax can create a significant financial burden on the owner’s actual wealth (equity) compared to a “net” wealth tax, which would account for the $900,000 debt.
Real life scenario:
IF:
A property was bought for $360,000.
Inflation increased it to $2.1m.
Council rates charged: rounded to $6,400 a year (~0.3%).
If the owner earned $25,000 a year, they would be paying
$2,500 = 10% income tax
$3,750 = 15% GST (sales tax)
$6,400 = 25.6% property tax
=========
$12,650 = 50.6% of total income.
+mortgage interest
+maintenance
+utilities
+living costs
+insurance
+vehicle depreciation/payments
Rentable value (if they didn’t have to live there): $600 per week, assuming they had a good tenant who paid for 12 months with no maintenance:
$31,200 - $6400 = $24,800
Mortgage payments of $45,000.