Australia: UGB Development: Growth Areas Infrastructure Contribution

On 24 December 2008 the Victorian Government released information on the form of the proposed Growth Areas Infrastructure Contribution (GAIC).

Snapshot

• GAIC is a proposed compulsory charge of $80,000 or $95,000 per hectare on certain UGB land situated in Melbourne's 5 growth areas (Casey-Cardinia; Hume; Melton-Caroline Springs; Whittlesea; and Wyndham);
• A transitional regime will apply from 2 December 2008;
• GAIC will be payable by the landowner upon subdivision, sale or issuance of a building permit;
• Land in all 5 of Melbourne's growth areas will be treated uniformerly;
• The form of the GAIC will be materially different to the State infrastructure contribution outlined in the 2005 A Plan for Melbourne's Growth Areas (refer to Maddocks Update: 28 November 2005 http://tinyurl.com/c2jrl7)
• The Growth Areas Authority will administer GAIC revenue collected by the State Revenue Office.

GAIC is of considerable financial and practical importance to landowners and developers holding UGB land or which have UGB land under option.

GAIC is yet to be formally implemented via legislation but an Information Sheet issued by the Growth Areas Authority confirms the key aspects of the proposed regime and transitional arrangements.

Land Liable To GAIC?

Broadly, GAIC will apply to:

• land brought into Melbourne's UGB in 2005 (2005 UGB Land); and
• land situated in "Investigation Areas" which is brought within the UGB in or after 2009 (+2009 UGB Land).

The position is summarised in further detail below:

Key things to note include:

• a 2-tier flat rate scale will apply equally across all 5 growth areas;
• no direct or indirect link between amount payable and amount of infrastructure required in any particular area;
• UGB characterisation of land is determinative (nature of landowner irrelevant).

Liability Trigger?

A GAIC liability will arise when land liable to GAIC (GAIC Land) becomes subject to any of the following events after 2 December 2008:

1. subdivision;
2. sale; or
3. a building permit for major works.

Key things to note include:

• a liability will arise upon the first occurrence of subdivision, sale or building permit;
• the liability is intended to be once-off (i.e. on-sale of previously taxed UGB land will not trigger a further liability);
• a binding sale agreement entered on or before 2 Dec 2008 in respect of 2005 UGB Land or +2009 UGB L and will not trigger a GAIC liability. GAIC will be paid if the land is subsequently the subject of events 1-3 above;
• it is not clear how an option over land entered on or before 2 Dec 2008 will be treated.

Who Will Pay?

The owner of GAIC L and at the time of subdivision, sale or issuance of a building permit will be liable to pay the charge.

Key things to note include:

• liability intended to sit with landowner, not attached to land like land tax;
• cash payment required (no provision for 'in-kind' payment – refer below);
• in subdivision or building permit scenario landowner will have cash flow issues to manage in paying GAIC;
• key time to manage GAIC issue in sale scenario will be during price negotiations (either vendor will bear 100% or liability can be shared between parties).

How Will GAIC Revenue Be Used By Government?

Under the supervision of the Growth Areas Authority:

• 50% will be allocated to partially offset the cost of infrastructure projects in growth areas; and
• 50% will be paid into a 'Growth Areas Development Fund' to fund the costs of future projects and fund the operational costs of the Growth Areas Authority.

Importantly:

• there is no direct link between GAIC paid by a landowner and infrastructure projects undertaken in the area in which the landowner's land is located;
• Growth Areas Authority will have a broad discretion in determining the application of GAIC revenue.

Scope For "In-Kind' Contributions?

There does not appear to be any scope for a landowner to pay the contribution via "in-kind' payment in the form of roads construction, public infrastructure construction etc. In-kind contributions were originally contemplated in the 2005 A Plan for Melbourne's Growth Areas.

Developer acquires UGB land from Farmer Brown – Implications?

No GAIC will be payable if the land was included in the UGB before 2005 or is less than 0.4 hectares in total size.

If the land is 2005 UGB L and or +2009 UGB L and, the timing of the purchase will be critical:

• if sale agreement entered on or before 2 December 2008, no GAIC liability for Brown (Developer will pay GAIC when it subsequently subdivides, on-sells or obtains a building permit);
• if sale agreement entered after 2 December 2008, GAIC liability for Brown upon subdivision, sale or building permit ($80,000 per hectare if 2005 UGB L and, $95,000 if +2009 UGB Land).

Developer Already Owns UGB Land – Implications?

If land is either 2005 UGB L and or +2009 UGB L and, GAIC will apply at the per hectare rate upon subdivision, sale or grant of building permit.

Developer Has UGB Land Under Option At 2 Dec 2008 – Implications?

The application of the 2 Dec 2008 transitional rule to options is not clear at this stage. The GAA Information Sheet stipulates a need for a 'totally binding sale arrangement' at 2 Dec 2008. It is unclear whether a post-2 Dec 2008 binding sale contract sourced from a pre-2 Dec 2008 option will attract concessionary treatment.

UGB "Investigation Area" Land – Implications?

Any investigation area land brought within the UGB in or after 2009 will be considered +2009 UGB Land and will attract GAIC upon first sale, subdivision or grant of building permit for major works. Mere reclassification of investigation area land to UGB land will not trigger a GAIC liability.

Can Landowner Pass-On GAIC?

There does not appear to be anything in the proposed regime preventing full or partial pass-on of GAIC by a landowner. It is expected that market conditions will dictate how much of the contribution is able to be passed on.

Assuming a standard block size of 500 square metres and a 65% developable area per hectare (6,500 s/metre developable area for every 10,000 s/metres), developers will generally manage 13 developable blocks per hectare. If the land in question is +2009 UGB Land, this translates to a per block charge of $7,308 (approx.) potentially recoverable from the end purchaser.

Is GAIC Payable In Addition To Local Council Charges?

The government intends to reform the different regimes that operate for local infrastructure charges in growth areas but is yet to announce further details.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.