Land Tax Changes from 13 December 2023

Summary of State Taxation Acts and Other Acts Amendment Act 2023

1. Local Government Act (in force from 13/12/2023)

Amends the definition of “Capital Improved Value” to be the same definition as in the Valuation of Land Act (which has also been amended to include fixtures on the land whether owned by the landlord or the tenant or any other occupier).

Presumably, this amendment has been made to prevent a land owner saying that some or all of the fixtures on the land should be ignored because they belong to the tenant.

2. Property Law Act (in force from 01/01/2024)

Amended the General Conditions of Sale of Land that can be used for sales of land which are not under the Transfer of Land Act (i.e. sales of old law land) to remove any right of the vendor to adjust land tax or windfall gains tax. 

3. Sale of Land Act (in force from 01/01/2024)
4. Land Tax

Prohibition on a vendor adjusting land tax (if the sale price is less than the threshold).

The threshold will be $10 Million during 2024 and will be adjusted annually by CPI (eight capital cities) and be rounded up or down to the nearest $100,000.

Therefore, starting from 1 January 2024, when you sell your properties, you are no longer able to adjust the land tax at settlement. This would mean that you would be required to pay the land tax for the full year even if you only own the property for part of the financial year. If you fail to exclude the land tax adjustments clause in your sale of contract, you will incur a penalty of 11,520 for an individual or $57,600 for a corporate vendor.

The prohibition on adjusting land tax does not apply to contracts made before 1 January 2024.

1. Windfall Gains Tax

Prohibition on a vendor entering into an option agreement or a contract under which the purchaser must pay an amount towards an existing windfall gains tax liability.

There is not a threshold above which the prohibition ceases to apply.  In other words, the prohibition applies no matter how high the sale price for the land.

The prohibition on recovering windfall gains tax does not apply to options or contracts made before 1 January 2024 (or to a contract made on or after that date under an option made before that date).

The penalty for a vendor including a clause in an option or contract requiring the purchaser to pay an amount towards the existing windfall gains tax liability is $11,520 for an individual vendor and $57,600 for a corporate vendor. 

4. Valuation of Land Act (in force from 13/12/2024)

Amends the definition of “Capital Improved Value” to include fixtures on the land.

“Fixtures” means any of the following, whether owned by the owner of the land or a tenant or any other occupier of the land—

• anything that constitutes a fixture at law; and
• any other item fixed to the land.

1. Land Tax Act

In force from 13 December 2023

• There is to be a “Covid-19 Debt Temporary Surcharge” on certain land which has been assessed on a single-holding basis.

The temporary surcharge runs from 2024 until 2033.

The surcharge applies to land owned by:

• a charity; or
• a Unit Trust with a nominated PPR beneficiary (except a pre-2006 beneficiary); or
• a Discretionary Trust with a nominated PPR beneficiary.

Note:

If land tax would otherwise be assessed at the general rate, then the temporary surcharge on land with a site value of $300,000 or more is $975 plus 0.1% of the site value exceeding $300,000.

If land tax would otherwise be assessed at the trust surcharge rate, then temporary surcharge on land with a site value of $250,000 or more is $975 plus 0.1% of the site value exceeding $250,000.

• The amount of Special Land Tax payable by a Build to Rent owner will increase:
• marginally and temporarily (in 2024 to 2033) if the owner is not an absentee; but
• significantly and permanently if the owner is an absentee.

1. Vacant Residential Land Tax applies across all of Victoria.

In force from 1 January 2025

• Vacant Residential Land Tax applies across all of Victoria.

The rate of VRT will depend upon how long the property has been vacant.

The rates are as follows:

• If the property was not vacant in the preceding tax year: 1% of the CIV;
• If the property was liable for VRT in the preceding tax year but not the tax year before that: 2% of the CIV;
• If the property was liable for VRT in the last two preceding tax years: 3% of the

Note

There is an exemption for a holiday home but in the year preceding the tax year:

• The owner (or a vested beneficiary of a trust to which the land is subject) must have used and occupied other land in Australia as a PPR; and
• The owner (or a vested beneficiary of a trust to which the land is subject) or a relative of that person must have used and occupied the land as a holiday home for a period of at least 4 weeks (whether continuously or aggregate).

This amendment is in favor of the owner. The Act previously said that the owner (or a vested beneficiary of a trust to which the land is subject) has to be the one using and occupying the holiday home. It can now be a relative of such a person.

There is a new exemption (Section 88EA) which seems to be aimed at a situation where the owner did not use the land in the preceding years because a holiday home was being constructed on the land and the owner was making genuine attempts to sell the land during construction (at or below the price when construction began).

There is also a new concession (Section 88EB) – where the VLRT will only be 1% of the CIV – if, in the preceding year, the land was exempt under Section 88EA.

Because the area covered by the VRT is being expanded on 1 January 2025:

• the exemption relating to the construction or renovation of the holiday home in the new area deems the construction or renovation to have commenced on 31 December 2023;
• the exemption relating to a residence becoming uninhabitable deems an uninhabitable residence in the new area to have become uninhabitable on 31 December 2023.

In force from 1 January 2026

The Act already defines “residential land” to include land that is capable of being used solely or primarily for residential purposes.

Section 34B(2A) is added to expand the definition of “residential land” to include land in Metropolitan Melbourne that is within a zone other than a non-residential zone but is not solely or primarily used for or under development for a non-residential use.

Such land is deemed vacant if it falls within the section for a continuous period of five years of longer.

This appears to catch land that could be used or developed for commercial or residential uses but is not being used or developed for any use. That is, the land is being “land-banked”.

There is an exception if the Commissioner determines that:

• The land is intended to be solely or primarily used or developed for non-residential use; and
• There is an acceptable reason for the reason not yet being used or developed in that way.

In other words, if unimproved land that could be used for residential development is left unused or undeveloped for five years or longer, then the land will be subject to the VRT unless the owner can persuade the SRO that the owner intends to use or develop the land for a non-residential use and there is good reason why that has not started yet.

The rate of VRT for such land is 1% of the CIV (which, given that the land will normally be vacant, is likely to be the same as the site value). The rate does not increase the longer the land is left vacant.

Land Tax Act along with the SRO is very complicated. The disposal of any property along with land tax amounts should always be checked with your solicitor &/or conveyancer at the time of preparing and before executing any legally binding contract. It is important to fully understand what your financial position will be in relation to possible land tax charges, etc.

We strongly recommend you receive advice from your solicitor, the SRO and/or real estate agent to form your own educated opinion.

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