**An update is being published, please check the latest article: Updated Vacant Residential Land Tax Framework
The Victorian Treasurer introduced significant property tax changes in October 2023, which build upon earlier reforms in May 2023. These changes are outlined in the State Taxation Acts and Other Acts Amendment Bill 2023 and include:
- Expansion to the Vacant Residential Land Tax (VRT)
- Prohibiting land tax apportionment and existing Windfall Gains Tax (WGT)
Expansion of Vacant Residential Land Tax Rules
- Proposed expansion to apply across all residential lands in Victoria.
- Extension to unimproved/undeveloped lands vacant for 5 years or more.
- Effective from the 2025 tax year.
Proposed changes to the Victorian Vacant Residential Land Tax (VRLT) have significant implications. If the Bill is approved, the VRLT will apply to all residential properties across Victoria, beyond inner Melbourne suburbs, including previously exempt holiday homes. Furthermore, the VRLT will extend to undeveloped lands in metropolitan Melbourne vacant for 5 years or more, subject to specific criteria. The Bill also grants the Commissioner of State Revenue wide discretionary powers in VRLT matters, potentially leading to uncertainty and disputes for landowners. These changes will prompt landowners to re-evaluate their property holding strategies.
The proposed annual tax is set at 1% of the capital improved value (CIV) of taxable land. For more information, please visit the state revenue office website.
Prohibition on Land Tax Apportionment Under Contracts
- Effective from January 1, 2024.
- Prohibits vendors from making land tax apportionments in land sale contracts.
- Applies to all land tax liabilities, including Windfall Gains Tax.
- Penalties for offenses are significant.
Commencing on January 1, 2024, a substantial change is set to transform the management of land tax liabilities in Victoria. Under this proposed shift, it will be considered an offense for vendors to pass their land tax liability or existing windfall gains tax (WGT) liability onto the purchaser in a land sale contract. This change, aimed at enhancing consumer protection, will impact all land vendors, including corporations and trusts. Non-compliance may lead to substantial penalties, and implementing these measures could pose challenges for those involved in property transactions. These changes may prompt vendors to include land tax and WGT costs in property prices, potentially influencing the dynamics of the property market.
Currently, in typical land sale contracts, land tax liability is divided. The vendor is tasked with covering the portion of land tax for the year of sale, spanning up to and including the day of settlement. Conversely, the purchaser is obligated to account for the remaining land tax for the rest of the year through adjustments to the purchase price. In the second reading speech of the Bill, the Victorian Treasurer underscored the lack of transparency in this practice. This occurs because the apportioned land tax isn’t explicitly reflected in the purchase price, and it frequently results in purchasers shouldering land tax costs even when they have no actual land tax liability upon property transfer.
Why You Should Stay Informed
At this point, no transitional provisions have been established to deal with these changes. Consequently, there is uncertainty regarding the impact of the new changes on an adjustment clause within a contract. Specifically, it’s unclear whether a contract entered into before 1 January 2024, but with a settlement date set after that, would be influenced by these changes, potentially rendering it unenforceable.
These changes will impact landowners, vendors, purchasers, and conveyancing practitioners and it is important to consider the implications. If you have any questions, consult with us to navigate these reforms effectively.