21 December 2023

Victorian State Revenue Office Alert – Overhaul of Land Tax, Duties and Other Taxes

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Changes to the Vacant Residential Land Tax regime and to land tax, windfall gains tax and duties in Victoria.
Australia Tax
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The State Taxation Acts and Other Acts Amendment Act 2023 has received Royal Assent on the 12th of December 2023 (Act).

The Act introduces significant changes to the Vacant Residential Land Tax (VRLT) regime and also introduced changes to land tax, windfall gains tax (WGT) and duties.

The key changes are noted below according to when they take effect:

Changes Effective 13 December 2023

Expansion of Corporate Reconstruction Concession

The corporate reconstruction concession (CRC) in the Duties Act 2000 has been extended to include sub-sale transactions within the same corporate group.

Land Valuation Amendments – Fixtures To Be Included in the Capital Improved Value of Land

The Valuation of Land Act 1960 has been amended to provide that the value of fixtures is included in the capital improved value of land.

A fixture will extend to anything considered a fixture at law as well as any item fixed to the land (whether owned by the land owner or occupier of land).

This will result in the value of these fixtures being considered in the capital improved value of land and will affect rates, fire services levy, WGT, and VRLT.

The Local Government Act 1989 will also be adjusted accordingly in line with the Valuation of Land Act 1960.

Changes Effective 1 January 2024

Prohibition on Adjusting Land Tax Liabilities

Settlement adjustments have typically apportioned land tax liabilities between vendors and purchasers.

Starting from 1 January 2024, vendors will be prohibited from apportioning land tax liabilities except for high-value property transactions, which will be based on the applicable annual thresholds for sale price.

In the 2024 calendar year, the sale price threshold will be $10 million. In subsequent years, the sale price threshold will be dependant on the threshold for the previous year and the consumer price index for the preceding calendar year.

Violations of these prohibitions will incur penalties of 60 penalty units for individuals and 300 for bodies corporate, equating to $11,538.60 and $57,693 for the 2024 financial year.

The changes are aimed at increasing transparency and preventing practices where land tax costs are ambiguously transferred to unsophisticated purchasers and which adds to the overall costs of buying a home.

The changes however have a broader effect as they do not apply only to PPR transactions and will apply to any property transaction in Victoria (residential or otherwise).

The prohibition on adjustment of land tax liabilities only applies to contracts of sale of land entered into from 1 January 2024.

Prohibition on Adjusting Existing Windfall Gains Tax Liabilities

Similar to land tax adjustments noted above, the Act introduces prohibitions on adjusting WGT liabilities.

The key distinction to the prohibition on land tax adjustments is that the prohibition only applies to an existing WGT liability (ie once a WGT assessment has been issued).

This means that vendors and purchasers are not prohibited from contractually adjusting prospective WGT liabilities. That is, the changes introduced in the Act prohibit settlement adjustments of an existing WGT liability rather than an apportionment of a prospective WGT liability between parties through the contract of sale/ option to enter into a contract of sale negotiation processes.

Changes Effective 1 January 2025

Significant Expansion of Victoria's Vacant Residential Land Tax Regime

VRLT is currently limited to Victorian residential properties in inner and middle Melbourne.

The Act introduces four main changes to VRLT as follows:

  1. From 1 January 2025, VRLT will apply to all vacant residential properties anywhere in Victoria which are vacant for more than six months in the previous calendar year.
  2. A progressive rate of VRLT will apply to non-exempt vacant residential land across all of Victoria based on the number of consecutive tax years the land has been liable for VRLT (ie 1% for preceding year, 2% for second consecutive year, 3% for third consecutive year).
  3. The VRLT holiday home exemption will be amended to allow the usage and occupancy requirement to be satisfied by a relative of the owner or vested beneficiary.

Changes Effective 1 January 2026

Vacant Residential Land Tax Regime Further Changes

From 1 January 2026, the Act introduces the following further changes to the VRLT regime:

  1. The definition of 'residential land' will also encompass unimproved land in metropolitan Melbourne left undeveloped for five years or more and is capable of residential development. This does not apply to non-residential zones.
  2. New VRLT exemption introduced for unimproved land that is contiguous to an owner's principal place of residence, that enhances the owner's PPR and is used solely for the private benefit and enjoyment of the owner.
  3. New VRLT exemption introduced for land that the Commissioner is satisfied cannot be used or developed for residential purposes.

Queries on changes or state taxation matters

If you are impacted by the changes introduced in the Act or require further information, we can provide clear legal advice on these changes or any state taxation laws in Australia.

Our state taxation lawyers can provide clear guidance on how best to deal with the respective Australian state revenue authorities from a legal and practical perspective.

Speak to one of our state tax lawyers today for further information on 1300 907 335 or complete an online form and we will respond promptly.

See also - Victorian State Revenue Office Alert – Overhaul of Land Tax, Duties and Other Taxes, October 2023.

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.

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