Changes to property tax laws in Victoria

The State Taxation Acts and Other Acts Amendment Bill 2023 (the Bill) was introduced into the Victorian Parliament in early October 2023. If passed it will result in changes to Victorian tax laws in relation to land tax, windfall gains tax (WGT) and duty.

The main changes are:

  • Prohibiting the adjustment of land tax or existing windfall gains tax liabilities

The proposed amendments to existing legislation prohibit adjustments for land tax or an existing WGT liability between a vendor and purchaser at settlement in all contracts for the sale of land in Victoria from 1 January 2024.

Contracts for the sale of land currently provide that land tax is to be apportioned between the vendor and purchaser as an adjustment to the purchase price at settlement and the land tax liability is to be paid by the vendor.

Under the proposed amendments from 1 January 2024, it will be an offence for vendors to enter into contracts which seek to apportion any land tax or existing WGT liabilities to purchasers and if the contract includes such a clause the clause will be of no effect. The penalty for this offence will be 60 penalty units for individuals (currently $11,538.60) and 300 penalty units for bodies corporate (currently $57,693.00).

No other rates, taxes, assessments, fire insurance premiums and other outgoings are affected by the changes. They also are not intended to preclude the apportionment of WGT in situations where a notice of assessment of WGT has not been served on a person at the time the contract of sale of land is signed.

It is not clear whether an adjustment clause in a contract signed before 1 January 2024, but with settlement to occur after 1 January 2024, will be caught by the new changes and be unenforceable.

The key takeaway is that all contracts will need to be updated to remove any land tax adjustment condition for contracts signed on or after 1 January 2024.

  • Expanding the vacant residential land tax regime

Vacant residential land tax of 1% of the capital improved value (not the ‘unimproved’ land value) is currently applied to residential properties that have been vacant for an aggregate of six months or more in the previous calendar year (some exemptions apply) where the property is situated in 16 inner and middle Melbourne council areas.

Changes are proposed in two key areas:

  • Expanding vacant residential land tax to allvacant residential land throughout Victoria from 1 January 2025 (that is, the 2025 land tax year) but the period to determine a developed property’s vacancy will generally start on 1 January 2024.
  • Expanding the definition of ‘residential land’ from 1 January 2026 to include ’unimproved’ residential land in established areas of metropolitan Melbourne that are not in a specified non-residential zone and have remained undeveloped for a period of 5 or more years.
  • Amending the Valuation of Land Act 1960 to clarify how capital improved value is to be calculated for valuation purposes.

The proposed amendments include a definition of ’fixtures’, and the value of fixtures is to be included in determining the capital improved value of the land. The Local Government Act 1989 will also be amended to reflect this change. Effective from 1 January 2024, the amendments will impact valuations for rates, fire services levy, WGT and vacant residential land tax.

  • Duty amendments to the corporate reconstruction and consolidation provisions in the Duties Act 2000.

The proposed changes to the Duties Act include an extension of the corporate reconstruction and consolidation concession (which usually results in a 90% reduction to the duty otherwise payable) to apply to sub-sale transactions between members of the same corporate group as defined under the Act. The changes are proposed to take effect from the day after the Bill receives Royal Assent.

Further updates will be provided when the final Bill passes.

13 October 2023