By Grindal Legal Senior Associate, Damian Lasocki and Administrative Assistant, Diana Poulopoulos
Did you know that on 3 October 2023, the Victorian Parliament introduced the State Taxation and Other Acts Amendment Bill 2023 (Bill)? If passed, this legislation would make significant changes to Victoria’s taxation laws – in particular, land tax, windfall gains tax and vacant residential land tax, as well as how these are treated in property transactions.
Here’s what you need to know.
What are these changes?
The Bill includes various substantive and procedural amendments to Victoria’s taxation and valuation system, with some of the key changes highlighted below:
A Vendor’s land tax and assessed windfall gains tax cannot be passed onto a Purchaser upon settlement of the sale of land[1]
Overview
It is current standard practice to apportion the land tax assessed over the property (and, more recently, windfall gains tax) at settlement between the parties. The Vendor is responsible for land tax from 31 December to the day of settlement and the Purchaser is responsible from the date of settlement whether or not they would have been personally liable.
This Bill proposes that both the Property Law Act 1958 (Vic) and the Sale of Land Act 1962 (Vic) be amended to both exclude land tax from being apportioned on settlement under a contract of sale of land, and to prohibit the inclusion of assessed windfall gains tax in both contracts of sale of land and options to purchase land. Any contractual provisions to the contrary will be void, and penalties shall apply.[2]
What does this mean for me?
For vendors, this means that all of your land tax and assessed windfall gains tax must be paid in full before settlement – regardless of where it falls within the calendar year. Vendors and purchasers will still be able to apportion any windfall gains tax before an assessment has been issued by the State Revenue Office. The extent of any financial burden incurred as a result of this change should be discussed with an accountant or financial advisor.
That means – you guessed it – purchasers will not be required to pay any apportionment for the vendor’s land tax or assessed windfall gains tax. However, those looking to buy in the future should be prepared for both an increase in property prices and settlements taking place later in the year, due to vendors seeking to account for the amount lost as a result of their land or assessed windfall gains tax liability.
The Bill does not currently include any transitional provisions – that is, whether these changes apply if you have signed a contract of sale prior to 1 January 2024 with settlement due after 1 January 2024.
Vacant residential land tax (VRLT) shall apply to all vacant residential land in Victoria[3]
Overview
Currently, VRLT only applies to vacant residential land in specific Melbourne City Council areas. If applicable, registered proprietors are liable to pay 1% of a land parcel’s total capital improved value (in addition to any existing land tax) to the State Revenue Office. Residential land is categorised as ‘vacant’ if uninhabited for more than 6 months in the preceding year.
This Bill proposes that the Land Tax Act 2005 (Vic) be expanded to have VRLT apply to all vacant residential land in Victoria, effective 1 January 2025. Accordingly, categorisation of vacant land will begin to be assessed after 1 January 2024.
What does this mean for me?
Registered proprietors of Victorian vacant residential land will be required to pay 1% of their land’s total capital improved value to the State Revenue Office on top of their regular land tax in 2025. Typical exceptions to VRLT still apply to this land.
Extension of corporate reconstruction and consolidation provisions to sub-sale transactions[4]
Overview
Currently, the ‘sub-sale’ provisions of the Duties Act impose double duty where a person enters into an option or contract to purchase land, another person (e.g. a nominee) subsequently becomes entitled to take the transfer of the land, and ‘land development’ has occurred or additional consideration is paid.
The proposed amendments extend the application of the corporate reconstruction and consolidation concessions to apply to sub-sale transactions between members of the same corporate group.
What does this mean for me?
The sub-sale provisions can have significant adverse consequences for parties undertaking ‘land development’ activities (interpreted broadly) prior to nominating a related entity under a contract for land. These amendments appear to address the unintended consequences of these provisions, permitting eligible parties to apply a 90% discount to duty otherwise payable.
Where are we now?
At the date of this post, the Bill has passed the Legislative Assembly and has been read for a second time in the Legislative Council (the upper house of Victoria’s Parliament). The Bill would typically be examined in detail before being read for a final time and then presented to the Governor for Royal Assent, which could still be some weeks away. Some provisions of the Bill come into operation on the day after it receives Royal Assent, whereas others have a set commencement date.[5]
You can follow the status of this Bill and any amendments via this link: https://www.legislation.vic.gov.au/bills/state-taxation-acts-and-other-acts-amendment-bill-2023.
In the meantime, vendors, purchasers and registered proprietors alike should consider their property plans or arrangements with an accountant or financial advisor in anticipation of the Bill being approved by Victorian Parliament. Legal practitioners should endeavour to update their contract of sale precedents and risk management measures in order to prevent any penalties being imposed on their clients.
References: [1] Section 15 of the Bill. [2] Section 16 of the Bill. [3] Section 25 of the Bill. [4] Sections 4-7 of the Bill. [5] Section 2 of the Bill. Disclaimer: This article does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.