Introduction
The passage of the State Taxation Acts Amendment Act 2023 has a host of potential implications for the Victorian public, most particularly in relation to land tax and vacant residential land tax (VRLT) assessments.
Within this new statute, the Victorian Government has made amendments to the Land Tax Act 2005, Sale of Land Act 1962, Windfall Gains Tax Act 2021 and several other pieces of relevant legislation.
To assist you in remaining up to date with these changes, we have summarised some key discussion points below.
Adjustments to Land Tax:
Of particular note for vendors and purchasers entering into contracts of sale of land on or after 1 January 2024 is the new prohibition on adjustments for land tax against a purchaser at settlement.
This prohibition, reflected in an amendment to the Sale of Land Act 1962, means that it is now an offence for a vendor to enter into a contract of sale that purports to compel a purchaser to pay an amount towards the vendor’s land tax.
However, it should be noted that this prohibition does not apply to contracts with a sale of price of $10 million and above (with this threshold amount to be indexed each year).
Further, this prohibition is not applicable to contracts entered on or before 31 December 2023, even if settlement for these contracts occurs on or after 1 January 2024.
Adjustments to Windfall Gains Tax:
Vendors and purchasers must also be mindful of the additional prohibition on clauses in contracts of sale which purport to apportion windfall gains tax (“WGT”) that has already been assessed.
Instead of being considered as an adjustment and subsequently passed on to a purchaser, WGT liability must now be reflected in the overall sale price if the vendor is to recover it.
Just like land tax, this WGT prohibition takes effect from 1 January 2024 but will not apply to contracts entered on or before 31 December 2023 and settle on or after 1 January 2024.
Vacant residential land tax (VRLT):
Traditionally, VRLT has only applied to a limited number of Council areas within Melbourne. However, from 1 January 2025, VRLT will now apply to residential land across all of Victoria if the land is “vacant” (i.e., it has not been occupied for 6 months in the previous year).
As part of these new changes, VRLT will progressively increase at a rate based on the number of consecutive years that residential land in Victoria has been vacant. This means that even if the land was not liable for VRLT during the previous tax year, it will still be subject to tax for the first year it is liable. For instance:
Year 1 – 1% of the capital improved value of land will be taxed.
Year 2 – 2% of the capital improved value of land will be taxed.
Year 3 – 3% of the capital improved value of land will be taxed.
There are exemptions to VRLT such as, for example, the VRLT holiday home exemption.
Meanwhile, from 1 January 2026, the VRLT will also extend to unimproved residential land in Melbourne that is capable of development, but has remained undeveloped, for at least 5 years.
Nonetheless, VRLT exemptions for:
unimproved residential land that is contiguous to a principal place of residence; and
unimproved land incapable of being used or developed for residential purposes.
will be simultaneously introduced.
In Summary
Our office can assist you in navigating through these land tax changes. Contact us on 03 9450 9400 if we can assist.