Several amendments to the Victorian state taxation Acts received royal assent on 12 December 2023 and have since commenced on 1 January 2024 which will affect those looking to sell their property after the commencement date. These changes predominantly address Land Tax, Windfall Gains Tax (WGT) and Vacant Residential Land Tax.
Adjustments of Land Tax and Windfall Gains Tax (WGT)
For contracts of sale of land from 1 January 2024, land tax cannot be adjusted between a vendor and purchaser. An adjustment clause will be unenforceable should it mention Land Tax, and potential penalties can apply for breaches to this new law (currently $11,540 for individuals and $57,570 for corporations). This new law does not apply to contracts entered on or before 31 December 2023 that settle on or after 1 January 2024.
Similarly, WGT liability cannot be adjusted or passed on. This has been done so that WGT liability, once assessed, will be reflected in the sale price of the property, rather than be separately handled as an adjustment. Much like for land tax, penalties can apply for any breaches of this law, and the same exemption for contracts entered before 31 December 2023 still applies.
Vacant Residential Land Tax (VRLT)
Several changes to VRLT have been introduced to expand its reach. The tax will now apply to land suitable for use as residential land that is neither vacant nor currently used for residential purposes. In addition to this, a new tax has been introduced for vacant land capable of being used for residential purposes that has been vacant for 5 years over the course of one ownership. Furthermore, from 1 January 2026, VRLT will apply to unimproved residential land in certain local councils.
A property will be considered as vacant if it has not been occupied for 6-months in the previous year, though there are exceptions to this rule such as for a holiday home. Properties that are vacant will be taxed between 1-3% of the Capital Improved Value of the property, that being the total market value of the property including land and all improvements. This is an ongoing annual tax and must be paid in addition to land tax. The tax increases by 1% starting at 1% up to the maximum of 3% for each consecutive year that the property remains vacant.
This tax will start 1 January 2025, but is based on occupancy from 1 January 2024.
Should your property meet the criteria for being considered vacant, you must notify the State Revenue Office (SRO) by 15 January each year, which can be done through their online portal. If you own a vacant property and fail to submit a notification, a notification default will arise and a penalty tax will apply in addition to any Vacant Residential Land Tax liability on the property for that tax year. In the case that the SRO is not notified, they may conduct an investigation to identify whether your property is vacant, which may include communication with other government agencies or local authorities such as water corporations to see if any usage has occurred over the past year.
How does this affect property owners?
If you are looking to sell your property, you need to be aware that you will have to pay all existing Land Tax and Windfall Gains Tax on the property as under these new laws, you will not be permitted to adjust these at settlement. In addition to this, if your residential property has been unoccupied for the past 6-months, or your property is suitable for residential use and has been vacant for the past 5 years, then your property may have Vacant Residential Land Tax liability which will increase for each subsequent year of vacancy.
Please contact us for further information on the changes to Victorian property tax laws and how it may apply to you.
Sources:
Articles:
State Revenue Office, “Notification default” (2024)
State Revenue Office, “Vacant residential land tax – frequently asked questions” (2024)
State Revenue Office, “Make a vacant residential land tax notification” (2023)
Other:
State Taxation Acts and Other Acts Amendment Act 2023
