By Saskia Wijewardene
Property law is constantly evolving, reflecting shifts in society and the economy. In October, the State Taxation Acts and Other Acts Amendment Bill 2023 proposed significant changes to Victorian Property tax law legislation, which, if passed could take effect from January 1st, 2024. The proposed changes include:
A prohibition on adjustments for land tax or existing Windfall Gains Tax (WGT) liabilities
The proposed amendments will prohibit settlement adjustments for land tax or an existing WGT liability between parties in all Victorian contracts for sale from 1 January 2024; and removes references of the apportionment of land tax between vendor and purchaser in the general condition of sale.
From 1 January 2024, it will be an offence for vendors to enter contracts which purport to apportion any land tax or existing Windfall Gains Tax (WGT) liabilities to purchasers, and any such clause will have no effect.
The penalties for the offence will be 60 units for individuals ($11,538.60) and 300 units for body corporates ($57,693).
Currently there are no transitional provisions to deal with these changes, it is not clear whether there would be an adjustment clause in a contract entered before 1 January 2024 with settlement post 1 January 2024.
Amendments to the Valuation of Land Act 1960 to clarify how capital improved value is to be calculated for valuation purposes.
The amendments include a definition of ‘fixtures’, and the value of fixtures is to be included in determining the capital improved value of the land, regardless of who owns the items and whether they are considered fixtures at law. The Bill aims to remove the Common Law test for distinguishing fixtures and chattels to provide landowners with greater certainty of what forms part of the land for valuation purposes.
Effective 1 January 2024, the amendments will impact valuation for rates, fire services levy, WGT and vacant residential tax.
Duties amendments to the corporate reconstruction and consolidation provisions in the Duties Act 2000
The proposed changes include an extension of the corporate reconstruction and consolidation concession to apply to sub-sale transactions between members of the same corporate group as defined under the Act.
The Bill will prevent the 10% concessional duty charged on an eligible corporate reconstruction and consolidation from applying concurrently with the 10% duty charged either on a relevant acquisition in a public landholder or a relevant acquisition arising from certain restructures that can erroneously result in only 1% of duty payable.
Finally, the Bill clarifies that the timing of the 30-day period for subsequent transactions can occur as a multi-step reconstruction or consolidation, without incurring further duty. The timing has been clarified so that the period begins on the day of the first transaction, so any transactions occurring later in the same day are full exempt from duty.
Expanding vacant residential tax regime
The Bill will expand vacant residential tax and that will be expanded from the current and inner council rates to all vacant residential areas throughout Victoria from 1 January 2025, with the period that properties could be deemed vacant starting 1 January 2024. This will also expand to unimproved residential land in established areas of metropolitan Melbourne from 1 January 2026.
Vacant residential land tax will be imposed on land that is unoccupied for more than 6 months of a calendar year. The Bill will extend to unimproved residential land that has remained unimproved for 5 or more years.
The residential status of land will be determined by its zoning under the current relevant planning scheme and will exclude any land currently used for or under development for a non-residential purpose. Two exemptions to unimproved residential land will be available: for unimproved residential land in relation to land sharing a border with a person’s principal place of residence; and land incapable of being developed for residential use. These measures are expected to take effect from 1 January 2026.
Windfall Gains Tax exemptions for charities
When land is rezoned, there can be a tax of up to 50% on the value uplift following rezoning. An exemption exists for land that is owned by charities or used for charitable purposes. The Bill seeks to expand this waiver to apply to properties where only a part of that land is used for charitable purposes at the time of rezoning.
The Bill seeks to broaden the scope of vacant residential land tax, increase transparency, and introduce changes to revenue law. Eales & Mackenzie will closely follow the progression of the Bill through parliament. If you seek assistance in relation to how these proposed changed will affect your development plans, please reach out to Eales & Mackenzie’s Property Lawyers Melbourne team, namely Richard Mackenzie, Charlotte Black, Fabio Salemi and Vita Fisicaro on 86211000 or 093311144 or by email at advisors@emlawyers.com.au.
