The draft legislation introducing significant Victorian property tax changes was amended within the last week to introduce further changes. The draft legislation passed both houses of the Victorian Parliament on 30 November 2023 and is now awaiting Royal Assent.
The State Taxation Acts and Other Acts Amendment Bill 2023, as first made public on 5 October 2023, introduced various significant property tax changes in Victoria. The changes introduced in October included the expansion of the Vacant Residential Land Tax (“VRLT”) regime, the prohibition against contractual adjustments of land tax and assessed Windfall Gains Tax (“WGT”), the introduction of a broad definition of ‘fixture’ within the land valuation regime in respect of Capital Improved Values of land in Victoria, and other changes on various Victorian duty, land tax and WGT aspects.
We previously provided our analysis of these changes, which can be read here. Since then, further changes have been proposed and subsequently approved. We explain these further changes below.
What are the further changes?
|What was the original proposal?
|VRLT — rate escalation
|Rate escalation from 1% to 2% if land is vacant for a second consecutive year, and up to 3% for land that is vacant for a third consecutive year.
However, the legislation provides for the lower rate of 1% to apply for new residential land that has not been used or occupied or changed ownership for more than three years.
|Previously, the same annual VRLT rate of 1% applied, irrespective of how many years a property has been vacant.
|VRLT — extended exemption period for new residential land
|Extension of the VRLT exemption for new residential land from two years to three years period if the eligibility criteria are met and the Commissioner is satisfied that the owner of the land made genuine attempts to sell the land at or below the price that they expected to receive when construction commenced on the land.
|Previously, the exemption for new residential land was only for two years if the eligibility criteria were met.
|VRLT — occupancy by relatives for holiday home exemption
|Expansion of the holiday home exemption so that the four-week occupancy requirement can include use by a relative of the owner or vested beneficiary
|Previously, the four-week occupancy requirement for the holiday home exemption did not include use by relatives.
|VRLT — guidelines for discretion to determine land is not vacant
|New provisions that stipulate guidelines must be issued by the Treasurer and the guidelines must be considered by the Commissioner in considering the discretion to determine that residential land is not vacant in a tax year if satisfied that there is a genuine intention for a residence to be constructed on that land and there are acceptable reasons for the delay in the commencement of the construction.
|Previously, there was no mandate for the issue and consideration of guidelines, leaving the Commissioner with broad and unfettered discretion.
|Land Tax — prohibition on the apportionment of land tax
|The prohibition on the apportionment of land tax will only apply where the price specified in the contract, less any discount or rebate that is specified in the contract, is less than a ‘threshold amount’, which is $10 million for the 2024 calendar year and will be adjusted for CPI for subsequent calendar years.
|Previously, the prohibition on the apportionment of land tax was proposed to apply to all contracts, regardless of the value of the transaction.
|Land Tax and WGT — prohibition on the apportionment of land tax and assessed WGT
|It is now explicitly stated in the legislation that the prohibition does not apply to contracts entered into before 1 January 2024, and in the case of assessed WGT, the prohibition also does not apply to options granted before 1 January 2024, or contracts entered into on or after 1 January 2024 pursuant to the exercise of options granted before 1 January 2024.
|Previously, the legislation was not clear as to whether the prohibition applied to contracts and options that were entered into before 1 January 2024 with settlement dates or exercise dates on or after 1 January 2024.
|Fire Services Property Levy and valuation of properties’ Capital Improved Values
|No changes to the original proposal to introduce a broad ‘fixtures’ definition in the Valuation of Land Act 1960, however, there are new amendments to the Fire Services Property Levy Act 2012 so that properties associated with wind, solar, hydro, water catchment areas, dams, reservoirs, and water storage purposes will be reclassified from the Industrial category to the Public Benefit category so that they attract lower Fire Services Property Levy rates calculated on Capital Improved Values.
|Previously, there were no amendments proposed to the Fire Services Property Levy Act 2012, such that higher Fire Services Property Levies were expected to apply to land with renewable energy assets such as wind turbines and solar farms.
This is because the amendments to the Valuation of Land Act 1960 provide a definition of ‘fixtures’ (which includes anything fixed to land) and stipulate that the value of fixtures is included in the Capital Improved Value of land. Capital Improved Values are relevant to the calculation of the following taxes:
• Fire Services Property Levy
When do the changes apply from?
Please see below a summary of the relevant commencement dates:
|Expansion of VRLT to the entire State of Victoria
|1 January 2025 (based on the status of the relevant land between 1 January 2024 and 31 December 2024)
|Application of VRLT to vacant land that has been undeveloped for five years or more
|1 January 2026 (based on the status of the relevant land between 1 January 2025 and 31 December 2025)
|Prohibition on the apportionment of land tax and assessed WGT
|1 January 2024
|Valuation of Capital Improved Values
|Day after Royal Assent
|Extension of corporate restructure duty relief to certain sub-sale transactions
|Day after Royal Assent
|Expansion of the charitable land WGT exemption where only part of the land is charitable land
|Day after Royal Assent
|Changes to ensure only one application of the fixed COVID-19 land tax levy where multiple parcels of land are assessed on a single-holding basis
|1 January 2024
Other anticipated changes
According to the Property Council of Australia, the Government has committed to extend the VRLT holiday home exemption to holiday homes held via a trust or in a company as of 28 November 2023, which addresses one of the concerns we previously raised. We expect there to be further legislative updates in 2024.
Based on the information currently available to us, this concession is not available for holiday homes that are newly held in a trust or a company after 28 November 2023 — that is, the holiday home exemption is not available for holiday homes that are newly held in trusts or companies. The above comments are subject to the details of the relevant legislation, which is not yet available.
We understand the State Revenue Office will increase its compliance focus in relation to the VRLT, and there will be a trial of mandatory reporting, starting with apartment towers in 2024, and inner and middle suburbs of Melbourne in 2025. It is understood that the mandatory reporting system will require property owners to declare who lives at their property, however, the relevant details are yet to be released.
What are the next steps?
Clients should consider the potential application of the changes to their circumstances and contact their Pitcher Partners representative if any assistance is required.