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Tax increases for Victorian landowners ahead

Kathryn Elleman, Mark McKinley, Shaun Burmester

The 2021/2022 Victorian State Budget is due to be revealed Thursday 20 May, but the Victorian Government has already announced significant tax increases and a new tax affecting land owners:

  • Land tax increases for land with a taxable value from $1.8 million up to $3 million, and for land with a taxable value of $3 million or more as follows:


  • Taxable Value

    Current Rate

    New Rate

    Above $1.8 million but
    not exceeding $3 million

    1.3%

    1.55%

    $3 million and above

    2.25%

    2.55%

     

  • Windfall gains tax on the total value uplift from a rezoning decision. Gains above $500,000 will be taxed at 50%, with the tax rate to be phased in on gains from $100,000 up to $500,000. Land subject to the Growth Areas Infrastructure Contribution (GAIC) are excluded from the new tax.
  • Land transfer (AKA “stamp”) duty increases on land with a dutiable value above $2 million, with duty calculated at $110,000 plus 6.5% of the dutiable value in excess of $2 million.

When will these rates take effect?

Currently the expected dates are:

Tax

Expected Commencement

Land transfer duty rate increase

1 July 2021

Land tax increase

1 January 2022 (i.e., the 2022 land tax year)

Windfall gains tax

1 July 2022

 

What does this mean in practice?

It is expected that the new land transfer duty rates would apply on transactions with contracts dated on or after 1 July 2021. However, this is not clear at this stage until the legislation is released. The increased land tax rates will simply apply from the 2022 land tax year onwards.

The Victorian Government has not provided much detail on how the new windfall gains tax will be applied, including how the uplift in value will be calculated or when any tax must be paid. However, as property values can change substantially following a successful re-zoning decision, upfront payment could render many development projects unfeasible. Given how the Victorian Government has allowed for the deferral or staged payment of other development charges in the past, like GAIC or the Melbourne Strategic Assessment environment mitigation levies, we anticipate a similar approach to this new tax. 

Regardless of timing for payment, the industry is questioning whether the negative or unintended consequences will outweigh any benefit gained by Government. Regional Victoria could be hit very hard due to its undersupply of land zoned for housing despite being in desperate need of new supply. Many projects, particularly those with a community or social focus could become unviable, with some developers already pausing plans until they know more information. Many anticipate housing prices will simply increase to compensate for the more expensive development costs.

How we can help

We will provide a further update if this Thursday’s Budget announcement sheds more light on the upcoming changes, and otherwise as more detail is provided.

If you are concerned about how these changes might affect you, please contact Kathryn Elleman, Mark McKinley, Shaun Burmester, or another member of our expert Property & Development Law team

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