Alert
Note update to this Alert: The State Taxation Acts and Other Acts Amendment Act 2023 received Royal Assent on 12 December 2023. The new law introduces significant property tax changes in Victoria with effect from 1 January 2024. On 13 December 2023, LPLC published a Snapshot of Major Victorian Property Tax Changes effective from 1 January 2024.
On 3 October 2023 the State Taxation Acts and Other Acts Amendment Bill 2023 (the Bill) was introduced into the Victorian Parliament. The Bill, if passed, will shortly result in significant changes to Victorian tax laws in the areas of land tax, windfall gains tax (WGT) and duty.
Solicitors and conveyancing practitioners should be alert to and familiarise themselves with these major changes now and be ready to promptly update their law practice’s processes and precedents.
Key proposed changes include:
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- A prohibition on adjustments for land tax or existing windfall gains tax liabilities
- Expanding Victoria’s vacant residential land tax regime
- Amending the Valuation of Land Act 1960 to clarify how capital improved value is to be calculated for valuation purposes.
- Duty amendments to the corporate reconstruction and consolidation provisions in the Duties Act 2000.
A prohibition on adjustments for land tax or existing windfall gains tax liabilities
The proposed amendments to the Sale of Land Act 1962, Property Law Act 1958 and Windfall Gains Tax Act 2021 prohibit settlement adjustments for land tax or an existing WGT liability between a vendor and purchaser in all contracts for the sale of land in Victoria from 1 January 2024.
Currently, contracts for the sale of land typically provide that the land tax liability in relation to the year of sale apportioned to the period up to, and including the day of settlement, are to be paid by the vendor, and the land tax for the remainder of the year is to be paid by the purchaser as an adjustment to the purchase price.
The Victorian Treasurer has noted in the Bill’s second reading speech that “this practice can reduce transparency, as the apportioned land tax is not directly reflected in the purchase price, and often results in land tax being passed on to purchasers who are subject to little or no actual land tax liability once the property has been transferred.”
Under the proposed amendments from 1 January 2024, it will be an offence for vendors to enter into contracts which purport to apportion any land tax or existing WGT liabilities to purchasers and any such clause will be taken to have no effect. The penalty for this offence will be 60 penalty units for individuals and 300 penalty units for bodies corporate (currently $11,538.60 and $57,693 respectively for the 2024 financial year).
The land tax and WGT apportionment changes do not affect other rates, taxes, assessments, fire insurance premiums and other outgoings. 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 entered into.
There are currently no transitional provisions to deal with these changes. As such, it is not presently clear whether an adjustment clause in a contract entered before 1 January 2024, but with settlement to occur post 1 January 2024, would be caught by the new changes and be unenforceable.
Expanding Victoria’s vacant residential land tax regime
Currently in Victoria, a vacant residential land tax of 1% of the capital improved value (not the ‘unimproved’ land value) is applied to residential properties that have been vacant for an aggregate of six months or more in the previous calendar year (some exemptions apply). To date this tax has only been applied to 16 inner and middle Melbourne council areas.
Changes are proposed in two key areas. Broadly:
- Vacant residential land tax will be expanded from the current inner and middle Melbourne council areas to all vacant residential land throughout Victoria. These changes will take effect 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.
- The definition of ‘residential land’ will be amended from 1 January 2026 to include ’unimproved’ land in established areas of metropolitan Melbourne that are not in a specified non-residential zone and have remained undeveloped for a period of five 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 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.
Notably, the proposed changes to the Duties Act include an extension of the corporate reconstruction and consolidation concession (which usually results in a 90% discount to 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.
The Bill proposes a number of other amendments which practitioners need to be across and understand. Practitioners can monitor the status of the Bill on the Parliament of Victoria website. The State Revenue Office has also stated in a recent media release that its website will be updated with more detailed information over the coming weeks.
