The Victorian government has recently introduced significant new property taxes for Victorian property owners. It is even more important to now get specialist advice and Sanicki Lawyers can assist you to navigate these changes.

What’s changed?

• Land Tax – From 1 January 2024, vendors are prohibited from adjusting a land tax liability in contracts with a sale price of under $10 million (exemptions apply for properties with a sale price of over $10 million).
• Windfall Gains Tax (‘WGT’) – Vendors are prohibited from adjusting a WGT liability in contracts from 1 January 2024 as assessed on the subsequent sale of that land.
• Stamp Duty on Commercial Property – a new regime applies whereby the property will be subject to one final payment of stamp duty and subsequently enter a new system.
• Vacant Residential Land Tax (‘VRLT’) – Property assessed for VRLT has expanded to all land in Victoria and will apply to properties left ‘vacant’ unoccupied for 6 months in the previous year. Exemptions may apply.

What do these changes mean?

These changes mean added costs and taxes to property owners in Victoria and likely make investing in property less desirable than in other states.

Land Tax

• The new laws prohibit the adjustment of a WGT liability that has been assessed on the sale of the rezoned land in Victoria where a ‘taxable value uplift’ has occurred.
• The new laws prevent the adjustment of a land tax liability between a vendor and purchaser in contracts for the sale of land from 1 January 2024 with a sale price of less than $10 million. Properties with a sale price of over $10 million are exempt.
• An adjustment clause for land tax in a contract of sale will be unenforceable.
• Prosecution and potential penalties apply for breaches of this new law.
• The tax-free threshold for calculation of land tax rates have been reduced from $300,000 to $50,000. This will capture more Victorian properties for payment of land tax.
• The Victorian absentee owner surcharge (i.e. foreign land tax surcharge) rate has increased from 2% to 4%. There will also be a decrease in the threshold amount for non-trust absentee owners from $300,000 to $50,000 for the absentee owner surcharge to apply.

The changes to adjustment of land tax clauses mean the vendor will now have to pay any land tax arrears prior to settlement. This cost could be substantial where the vendor has a substantial land tax liability in the current year and is settling on its property sale early in the following year.

Windfall Gains Tax

• The intention is for WGT, once assessed, to be reflected in the sale price and not adjusted in the contract.
• ‘Taxable value uplift’ is the difference in capital improved value of land before and after rezoning takes effect Following a rezoning, a WGT assessment will be issued to be paid by the due date unless a deferral election is made.
• If you elect to defer the tax but then sell the land, this triggers the tax liability which cannot be passed onto the purchaser.
• The exception is where a notice of assessment for WGT has not been received for the land when entering into the contract. In this case, an adjustment clause would be necessary to deal with a future unknown liability.

These changes mean that vendors are likely to restrict purchasers from obtaining any form of rezoning until settlement has occurred.

Vacant Residential Land Tax

• Land where a residence is being constructed or renovated if, on 31 December of previous year, more than 2 years have elapsed since construction or renovation commenced (i.e. from date of issue of relevant building permit).
• VRLT which previously applied to several council areas in inner Melbourne has now expanded to all residential land in Victoria.
• A property will be considered ‘vacant’ for the purposes of the VRLT if it has not been occupied for 6 months in the previous year. There are some exemptions that may apply (eg. holiday homes) but conditions apply for all exemptions.
• These properties will be taxed at a minimum of 1% and up to 3% of the value of the capital improvements to the land (not the land value).
• The VRLT will also apply to land where a residence is being constructed or renovated if, on 31 December of previous year, more than 2 years have elapsed since construction or renovation commenced (i.e. from date of issue of relevant building permit).
• The VRLT is in addition to land tax.

From 1 January 2026, VRLT will apply to unimproved residential land in metropolitan Melbourne capable of but has remained undeveloped for at least 5 years with the intention to stop land banking which could otherwise be developed. The Federal Government is also seeking to double the vacancy fees for all dwellings owned by foreign persons which are left unoccupied or genuinely available for rent for at least 183 days in a 12-month period purchased since 9 May 2017.

Holiday Home Exemption

The holiday home exemption applies to properties used and occupied by the owner or a vested beneficiary of a trust for at least 4 weeks (whether continuous or incremental) in the calendar year.

This exemption is subject to the following conditions:

• The owner or vested beneficiary must have had a different principal place of residence in Australia in the calendar year.
• The Commissioner of State Revenue must be satisfied that the property is a genuine holiday home.

An owner or vested beneficiary will only be able to claim the exemption for one holiday home in a calendar year. 

Stamp Duty

• From 1 July 2024, commercial property will be subject to one final round of stamp duty.
• This means once duty is paid, the property will be part of a new tax system and no further duty will be applied in the future (if it remains commercial).
• Instead, a Commercial and Industrial Property Tax (‘CIPT’) will be payable annually from 31 December after the 10^th anniversary of final stamp duty payment, at 1% of the unimproved land value per annum with no tax-free threshold.
• CIPT is separate to land tax.

This new law will not apply to a commercial land purchased before 1 July 2024 and land that is used for residential, primary production, community services, sport or heritage and culture purposes. 

Summary

All existing and prospective property owners should carefully review their circumstances and seek taxation and legal advice. For more information, please contact Robert Toth, Sanicki Lawyer’s Special Counsel.

Contact: Robert Toth | Special Counsel | Accredited Commercial Law and Franchise Specialist | [email protected] | mobile – 0412 67 37 57