Significant changes to the Vacant Residential Land Tax, and new proposed prohibitions on adjustments for Land Tax and Windfall Gains Tax
The Victorian Treasurer announced the significant changes to land tax adjustments in all contracts of sale entered into on and from 1 January 2024, and an expansion of the vacant residential land tax regime.
On 4 October 2023 the Treasurer stated that the proposed new legislation1 (the Bill) was being introduced to encourage housing supply and consumer protection measures to increase transparency on purchase costs for property purchases.
There are several significant changes, as noted below. The Bill is not yet law and may be amended on the way through Parliament. Based on the way in which taxes such as those that introduced the economic entitlement and windfall gains tax regimes were introduced in recent years, we don’t expect many (if any) departures from the following:
The Bill proposes wholesale changes to adjustments for land tax and the windfall gains tax for all contracts for any property in Victoria where the day of sale is on or after 1 January 2024.
The fact that these prohibitions on adjustments are not simply limited to off the plan residential sales, or that those prohibitions do not simply apply to lower-priced properties (such as the terms contract prohibitions that apply to sales for $750,000 or less) is very surprising. For example, the sale of a CBD building from one significant institution to another would include the same purchaser protections as a $400,000 parcel of residential land.
This is an odd policy initiative and does not seem to meet the brief as to consumer protection. In fact, it will require every contract of sale to be amended before it could be issued if a contract has been prepared and a property has not sold by 1 January 2024. This creates more work and means that vendors could not simply rely on the various forms of general conditions that have been used in Victoria during the last 15 years without being in breach of the Sale of Land Act.
As a purchaser protection the Bill requires that the vendor is solely liable under a notice of assessment issued on or before the date of contract in respect of a liability arising under windfall gains tax. Apportionment would not be permitted. However, the Bill does not prohibit the apportionment of other rates including the adjustment of windfall gains tax in situations where a notice of assessment of the tax has not been served on a person at the time the contract is entered into.
- Separate to the above changes, the Bill proposes to extend the application of vacant residential land tax to all vacant residential land in Victoria and also to extend it to simple vacant residential land. Currently the vacant residential land tax generally only applies to residential dwellings that are not occupied for six months or more of a calendar year, and it only applies to properties within the 16 inner-metro Melbourne areas. These are significant extensions.
- Extension to all of Victoria - dwellings:
From 1 January 2025, vacant residential land tax will be extended to all vacant residential land across Victoria for properties which are unoccupied for more than six months a year, with the period that properties could be deemed vacant starting on 1 January 2024. The Bill includes a new definition of “non-residential use” by reference to an extensive list of non-residential uses contained in the Australian Valuation Property Classification Code. Land under development for a non-residential use is also exempted in circumstances set out in the Bill.
- Extension to apply to undeveloped vacant land:
From 1 January 2026, vacant residential land tax will be extended to unimproved residential land in established areas of metropolitan Melbourne that have been undeveloped for a period of five or more years. To be clear, this is simply vacant land, even without a dwelling of any kind on it. The five-year period is considered to provide adequate time for an owner of residential land to commence construction of a residence before it is regarded as vacant residential land.
- The existing vacant residential land tax exemptions will continue to apply, including for properties being renovated, holiday homes and properties recently acquired or regularly occupied for work purposes. However, the Bill also introduces:
- new limitations on the exemptions that are available as to holiday homes or properties used for work purposes – they will only be available from 1 January 2025 if the owner’s principal place of residence is in Victoria; and
- two new exemptions being for land contiguous to principal place of residence land (for example, land used for a tennis court or swimming pool, although that would likely still be liable for “normal” land tax anyway) and for land that cannot be used or developed for residential purposes. These exemptions will take effect from 1 January 2026.
- Significant changes, including prohibitions and penalties, for adjustments of land tax and existing windfall gains tax liabilities against purchasers or any type of property in Victoria.
- Vacant residential land tax to apply to all vacant residential land (dwellings) in Victoria on and after 1 January 2025
- Expansion of the vacant residential land tax regime from 1 January 2026 to include undeveloped land in metropolitan Melbourne that has not been developed for five years – i.e. undeveloped residential land.
- State Taxation Acts and Other Acts Amendment Bill 2023 (Vic)
This article was written with the assistance of Alex Chan, Law Graduate.
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