Key points
- Rental terms for the build-to-rent (BTR) land tax concession become stricter – Additional administrative requirements with a potential minimum lease period of 12 months adds additional burden to landowners who are currently accessing or looking to access the BTR concession.
- Commissioner’s power to make provisional determination for Commercial and Industrial Property Tax (CIPT) – The Commissioner can now provisionally determine that certain lands are to be brought into the CIPT regime where the land does not have the usual CIPT land identifiers.
- New 50% penalty tax rate – A new 50% penalty tax rate for recklessness sits between the existing 25% (general default) and 75% (intentional disregard) rates, giving the Commissioner broad discretion to impose higher penalty tax.
The State Taxation Acts Amendment Act 2025 (Act) has been enacted following the State Taxation Acts Amendment Bill 2025 (Bill) passing both houses and receiving Royal Assent. The Bill was introduced into the Victorian Parliament soon after the 2025-26 Victorian State Budget was handed down by Victorian Treasurer, Jaclyn Symes. The Act amends various state tax legislation such as the Duties Act 2000, the Commercial and Industrial Property Tax Reform Act 2024, the Land Tax Act 2005 and the Taxation Administration Act 1997. This bulletin highlights some of the changes with respect to land tax, the Commercial and Industrial Property Tax, transfer duty and the penalty tax regime for state taxes in Victoria.
Build-to-rent land tax concession: Stricter rental terms and Commissioner’s discretion for dwellings that are temporarily unsuitable for occupation
There is an existing BTR land tax concession which provides for a 50% land tax discount on eligible BTR projects. We have previously written an article on a detailed breakdown of the BTR land tax concession (refer to our article here).
The concession requires a number of eligibility criteria to be satisfied, including the need for at least 50 dwellings to be:
- Suitable for occupancy; and
- Rented or “made available for rent” under a residential rental agreement for a fixed term of not less than 3 years, with renters having the ability to “elect” a lesser period. It is noted that there is no limitation on the length of the lesser period based on the current rules.
The Act seeks to reinforce the requirement for the provision of longer-term rental arrangements by:
- Amending the wording of the requirements as follows:
- Having the dwellings rented or “genuinely offered for rent”, instead of “made available for rent”; and
- Providing renters with the ability to “request” a shorter term, instead of “elect”;
- Having the owner and the tenant complete a declaration where a request for a shorter-term request has been made, with the declaration to be provided to the Commissioner of State Revenue (Commissioner) on request; and
- Limiting the shorter-term request to at least a fixed prescribed period if such period has been prescribed by the Victorian government, or any period if no period is prescribed. The period to be prescribed, if any, is not to exceed 12 months.
There has been no prescribed period as at the date of this article. As such, until if and/or when a period is prescribed by the Victorian government, tenants will be able to request a lesser term of any period based on the new rules under the Act, even if less than 12 months. The second reading speech of the Legislative Council on the Act indicates that further consultation will be undertaken on the minimum length of the leases, although it is also noted that the original policy intention of the BTR concession is to enable more opportunity for long-term leases.
The Act also seeks to provide the Commissioner with discretion to maintain that the BTR land tax concession is still available despite not meeting the 50 dwellings requirements in situations where dwellings are temporarily unsuitable for occupancy.
The uncertainty on whether minimum tenancy periods would be imposed and added administrative steps put an even larger burden on landowners to satisfy what is already an extensive set of criteria to qualify for the BTR land tax concession. The potentially more stringent rules, particularly where a minimum period of tenancy is prescribed by the Victorian government (which could be as long as 12 months), may make it harder for some developers to enter into the BTR market. Whilst the Act also seeks to allow the BTR concession to continue to apply notwithstanding interim gaps where dwellings are temporarily unsuitable for occupancy, this is ultimately still subject to the Commissioner agreeing to exercise his discretion to maintain the availability of the BTR concession. In contrast with recent updates on the expansion of the BTR land tax concession rules in other states, including having the concession in New South Wales apply indefinitely instead of the current end date of 2039 and the increase of the concession from 50% to 75% in Western Australia, the additional leeway proposed for dwellings temporarily unsuitable for occupancy does not provide a meaningful enough change for landowners that are currently in the BTR market or looking to enter the BTR market.
Landowners that are currently accessing or intend to access the BTR land tax concession should review their land tax position in light of the new proposed requirements.
Commercial and Industrial Property Tax: provisional determination on qualifying use and entry interest of child lot
The CIPT is a relatively new tax that came into effect from 1 July 2024 which is intended to progressively replace stamp duty on commercial and industrial properties in Victoria. We have previously written an article on a detailed breakdown of the CIPT regime (refer to our article here). In considering whether land has a “qualifying use” and considered to be commercial or industrial property that would be captured by the CIPT regime, the main identifier is whether the relevant land has an Australian Valuation Property Classification Code (AVPCC) within specified ranges.
Commissioner’s ability to make provisional determination on qualifying use
The Act provides the Commissioner with the power to provisionally determine that land has a “qualifying use” in certain situations. These include where land has not been valued or allocated an AVPCC, or where it has been more than a year since non-rateable non-leviable land has been valued.
The effect of this proposed change is that land can be brought into the CIPT regime with a provisional determination made by the Commissioner, even if the land does not have the usual identifiers for “qualifying use” such as an AVPCC within the specified ranges. As such, caution should be taken to consider whether there are any CIPT implications where it is not immediately evident whether land has a “qualifying use”.
Clarification of CIPT entry interest of child lots
The Act also seeks to clarify the CIPT entry interest of child lots derived from a subdivision of parent lots that are already within the CIPT regime. In this scenario, each child lot is taken to have the entry interest and any further interest acquired in the parent lot, with the same duty consequences and characteristics as the interests acquired in the parent lot.
To illustrate the application of the child lot entry interest in CIPT regime, the Act provides the following example:
Person A acquires a 50% interest in land under a transfer of land which occurs on 1 January 2026. This is a qualifying interest in the land and the dutiable transaction is an entry transaction. Person B is the beneficial owner of the remaining 50% interest in the land. Person A and Person B register a plan of subdivision to subdivide the land (the parent lot) into 2 lots (the child lots). On 1 July 2027, Person C purchases a 50% interest in each child lot from Person B. Duty is chargeable on these tax reform scheme transactions as the entry interest for each child lot is taken to have the same quantum (50%), characteristics (acquired by Person A) and duty consequences as the entry interest for the parent lot, and the interest acquired by Person C is not the same, nor substantially the same, as the entry interest for each child lot.
Introduction of a new penalty tax rate for recklessness
The Act seeks to introduce a new penalty tax rate of 50% where the Commissioner is satisfied that the default is caused wholly or partly by a taxpayer’s recklessness. This is in addition to the pre-existing penalty tax rates of 25% for general defaults, and 75% for where there is intentional disregard by the taxpayer.
The imposition of the proposed new 50% penalty tax rate is subject to the Commissioner’s satisfaction that a taxpayer’s “recklessness” has caused the default. This appears to give the Commissioner broad powers in determining whether there is the requisite “recklessness” to trigger the higher 50% penalty tax rate. Whilst the concept of “recklessness” also appears in the context of income tax and GST, it is unclear at this stage as to what factors the Commissioner will consider and whether similar principles to income tax and GST will be adopted by the Commissioner from a state taxes perspective in determining if the “recklessness” test has been satisfied.
To minimise the risk of penalty tax being imposed, taxpayers should take reasonable care in managing their state taxes affairs and seek advice where there is any uncertainty.
Amendments to notification requirements for trustees
There are currently existing notification obligations for trustees where lands are held in trust. The Act seeks to clarify some of the notification requirements, particularly where legal ownership of the land does not change but the capacity in which the legal owner holds the land changes.
Broadly, the Act clarifies that a person is required to notify the Commissioner within one month of the following events:
- The person becomes the owner of Victorian land as trustee of a trust, regardless of whether the same person previously owned the same land as trustee of a different trust;
- The person holds Victorian land as trustee of a trust and the trust becomes a different type of trust (e.g. discretionary trust to fixed trust); and
- The person holds Victorian land as trustee of a trust and the person stops holding the land in a trustee capacity.
The other existing notification rules such as changes to nominated beneficiaries and completion administration of deceased estates remain unchanged.
Expansion of PPR exemptions for temporary absences and death of resident: income derived from land
There are existing principal place of residence (PPR) land tax exemptions for temporary absences from a PPR, and death of a resident that used and occupied a PPR. Based on the current rules, both exemptions are not available if income was derived from the respective land (No Income Requirement).
Relevantly, the current rules also allow for a partial PPR land tax exemption where the subject land is used to carry on a substantial business activity or to provide accommodation in a separate residence, with land tax being assessable on parts of the land used for those separate activities and the remaining parts being exempt if the relevant PPR requirements are met.
The Act seeks to provide consistency by introducing exceptions to the No Income Requirement where this requirement can still be satisfied if income is derived from the carrying on of a substantial business activity or the provision of accommodation in a separate residence.
Expanded relief for persons affected by family violence
Proposed amendments have been made to account for the inability of relevant persons to properly access the first home buyer benefits in purchasing a new home and to access the PPR land tax exemption due to family violence. Broadly, the Act seeks to allow persons affected by family violence to:
- requalify for the first home buyer grant and the first home buyer duty exemption or concession on a new home if they were unable to occupy the previous home due to family violence, and they did not receive any financial benefit (such as rental income) from the previous home; and
- access the absence from PPR land tax exemption if the absence is due to family violence and no other land held by the relevant landowner is subject to a PPR land tax exemption.
We commend these amendments allowing persons affected by family violence to access the first home buyer and land tax benefits notwithstanding their circumstances which otherwise would have disallowed them from those benefits.
Extension of temporary off the plan duty concession by one year
In a recent article we discussed the announcement by the Victorian government of a one-year extension to the temporary off the plan duty concession ahead of the 2025-26 Victorian State Budget being handed down. The Act adds a further 12 months to the temporary off the plan duty concession to cover contracts up to until 20 October 2026.
When do the proposed changes commence?
The amendments are intended to commence on the following dates:
- 1 January 2026:
- BTR land tax concession amendments
- Expansion of PPR exemptions for temporary absences and death of resident: income derived from land ; and
- Amendments to notification requirements for trusts.
- The day after the day on which Royal Assent is received: other amendments addressed in this bulletin.
What are the next steps?
Clients should contact their Pitcher Partners representative to review their existing arrangements and determine what action is required in light of the changes.
