Victorian State Revenue Office Alert – Overhaul of Land Tax, Duties and Other Taxes

The Victorian Government has introduced significant changes to the Vacant Residential Land Tax (VRLT) regime and also introduced changes to land tax, windfall gains tax (WGT) and duties through the introduction of the State Taxation Acts and Other Acts Amendment Bill 2023 (Bill).

The key changes noted below are based on the details contained in the Bill which are still in draft form. You can track the Bill’s status here. Once the laws are passed the State Revenue Office will provide additional details on its platform.

Significant Expansion of Victoria’s Vacant Residential Land Tax (VRLT) Regime

VRLT is currently limited to Victorian residential properties in inner and middle Melbourne.

The Victorian Government, through the Bill, has proposed four main changes to VRLT as follows:

1. From 1 January 2025, VRLT will apply to all vacant residential properties anywhere in Victoria which are vacant for more than six months in the previous calendar year
2. From 1 January 2026, the definition of ‘residential land’ will also encompass unimproved land in metropolitan Melbourne left undeveloped for five years or more. This does not apply to non-residential zones
3. New VRLT exemption introduced for unimproved land that is contiguous to an owner’s principal place of residence, that enhances the owner’s PPR and is used solely for the private benefit and enjoyment of the owner
4. New VRLT exemption introduced for land that the Commissioner is satisfied cannot be used or developed for residential purposes.

Prohibition on Adjusting Land Tax Liabilities

Settlement adjustments have typically apportioned land tax liabilities between vendors and purchasers.

Starting from 1 January 2024, vendors will be prohibited from apportioning land tax liabilities.

Violations of these prohibitions will incur penalties of 60 penalty units for individuals and 300 for bodies corporate, equating to $11,538.60 and $57,693 for the 2024 financial year.

The changes are aimed at increasing transparency and preventing practices where land tax costs are ambiguously transferred to unsophisticated purchasers and which adds to the overall costs of buying a home.

The proposed changes in the Bill however have a broader effect as they do not apply only to PPR transactions and will apply to any property transaction in Victoria (residential or otherwise).

The Bill is also unclear if land tax can be adjusted on contracts signed before 1 January 2024 but have a settlement period on or after 1 January 2024. Further guidance from the State Revenue Office of Victoria (SRO) will be needed on the SRO’s position on this issue.

Prohibition on Adjusting Existing Windfall Gains Tax Liabilities

Similar to land tax adjustments noted above, the Bill introduces prohibitions on adjusting WGT liabilities.

The key distinction to the prohibition on land tax adjustments is that the prohibition only applies to an existing WGT liability (ie once a WGT assessment has been issued).

This means that vendors and purchasers are not prohibited from contractually adjusting prospective WGT liabilities. That is, the Bill intends to prohibit settlement adjustments of an existing WGT liability rather than an apportionment of a prospective WGT liability between parties through the contract negotiation process.

Land Valuation Amendments – Fixtures To Be Included in the Capital Improved Value of Land

Effective from 1 January 2024, the Valuation of Land Act 1960 will be amended to provide that the value of fixtures is included in the capital improved value of land.

A fixture will extend to anything considered a fixture at law as well as any item fixed to the land (whether owned by the land owner or occupier of land).

This will result in the value of these fixtures being considered in the capital improved value of land and will affect rates, fire services levy, WGT, and VRLT.

The Local Government Act 1989 will also be adjusted accordingly in line with the Valuation of Land Act 1960.

Expansion of Corporate Reconstruction Concession

The corporate reconstruction concession (CRC) in the Duties Act 2000 will be extended to include sub-sale transactions within the same corporate group.

This alteration will be effective immediately after the Bill receives Royal Assent.

Queries on proposed changes or state taxation matters

If you are impacted by the changes proposed in the Bill or require further information, we can provide clear legal advice on these changes or any state taxation laws in Australia.

Our state taxation lawyers can provide clear guidance on how best to deal with the respective Australian state revenue authorities from a legal and practical perspective.

Speak to one of our state tax lawyers today for further information on 1300 907 335 or complete an online form and we will respond promptly.