Significant new Victorian laws impacting land tax, windfall gains tax and vacant residential land tax
A new prohibition on adjustments for land tax and windfall gains tax and a significant broadening of the vacant residential land tax - what you need to know about the State Taxation Acts and other Acts Amendment Bill 2023, which was introduced into Parliament in early October 2023, and has now been passed.
Prohibition on the apportionment of land tax between a vendor and purchaser under a contract of sale
Current state of play
It is standard practice (and has been for a long time) for a vendor’s land tax liability (if any) to be adjusted between the vendor and purchaser at settlement as part of the ordinary settlement adjustments.
What is the change?
From 1 January 2024, vendors will not be permitted to pass on any part of their land tax liability to a purchaser under a contract of sale at settlement.
Any clauses in a contract of sale which purport to provide for the apportionment of land tax between the parties will have no effect.
The penalty for vendors who contravene the above will be 60 penalty units for individuals and 300 penalty units for body corporates (currently $11,538.60 and $57,693, respectively).
It has now been clarified that these new prohibitions on land tax adjustments will only apply to contracts entered into on or after 1 January 2024.
What does this mean?
While these were intended to be ‘consumer protection measures’ which would ‘increase transparency on purchase costs for property purchases’, it would appear that in reality, these measures may in fact have the opposite effect with vendors likely to factor in their land tax costs into sale prices as much as they are able to.
Prohibition on recovering windfall gains tax (WGT) under option or contract of sale of land
Current state of play
There is currently no prohibition on vendors passing on, at settlement, any part of an assessed WGT liability to a purchaser under an option or contract of sale.
What is the change?
From 1 January 2024, it will be an offence for a person to grant an option to enter into a contract of sale of land or to enter into a contract of sale of land that purports to apportion any existing WGT liability to a purchaser.
While an adjustment clause is necessary where the WGT liability is not yet known, the rationale behind this change is that a known WGT liability should be directly reflected in the purchase price negotiated by the parties.
Any prohibited clause will be taken to have no effect and the penalties will be the same as noted above.
What does this mean?
As with the new land tax rule, vendors will likely look to increase the contract price in order to factor in their WGT liability.
Expansion to current 'vacant residential land tax' (VRLT) regime
Current state of play:
'Residential land' that is 'vacant' in metropolitan Melbourne is subject to an annual tax of 1% of the property’s capital improved value. This is in addition to the standard land tax.
'Residential land' is land that is capable of being used solely or primarily for 'residential purposes', but does not include commercial residential premises, residential care facilities or land used for supported residential services or retirement village services.
To be considered ‘vacant’, the property must have been unoccupied in the preceding year for a period of more than 6 months (whether continuously or in aggregate).
What is the change?
The current VRLT regime will be expended in an effort to 'help ease pressure on rents and prices and free up available housing stock'.
From 1 January 2025, there will be no geographic restrictions. Therefore, the VRLT can cover any relevant land throughout Victoria.
From 1 January 2026, the definition of ‘residential land’ will be broadened so that VRLT applies to unimproved residential land in metropolitan Melbourne that has remained unimproved for 5 years or more.
What does this mean?
Depending on the zoning of the land, developers or investors who hold undeveloped blocks of land in metropolitan Melbourne could face a significant new annual tax if they do not either develop or sell within the 5-year period.
The expanded VRLT regime gives the SRO Commissioner a range of discretionary powers. For example, the SRO Commissioner has the discretion to determine if land is not residential land if it is satisfied that the land is intended to be solely or primarily used or developed for a non-residential use and there is an acceptable reason for the land not yet being used or developed in that way.
In response to industry backlash surrounding the lack of certainty that such broad discretionary powers create, regulations will be published which outline the factors that the SRO Commissioner must consider when exercising its discretion.
Permitted sub-sales (nomination) within corporate groups
Current state of play
In some circumstances, where the transferee of land differs from the named purchaser in a contract of sale (i.e. a sub-sale/ nomination), this can result in two or more assessments of duty.
What is the change?
The Duties Act 2000 (Vic) will be amended so that certain sub-sale (nomination) arrangements between corporate group entities will qualify for corporate reconstruction and consolidation duty concessions.
What does this mean?
The corporate reconstruction relief provisions to sub-sale transactions between group members are extended so that concessional duty rates will apply to transfers between members of the same corporate group.
All of the above is a summary of the effect of these changes. If you have any specific questions regarding how these changes might impact you or your business, please contact our office.
