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Key Reforms to Victoria’s Property Taxation Laws

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By: Nasiya Goldberg, Senior Associate

On 4 October 2023, the Victorian Treasurer announced in the introduction of the State Taxation Acts and Other Acts Amendment Bill 2023 (Vic) to increase transparency on purchase costs for property purchases by encouraging housing supply and consumer protection measures.

On 12 December 2023, the State Taxation Acts and Other Acts Amendment Act 2023 (Act) received Royal Assent. The Act introduces reforms to key property taxation legislation, and includes changes to vacant residential land tax, and prohibitions on land tax and windfall gains tax apportionment as part of contracts of sale of land.

The key reforms introduced by the Act are as follows:

1. As of 1 January 2025, the application of Vacant Residential Land Tax (VRLT) is extended to capture all Victorian residential land which has been vacant for more than 6 months in the preceding calendar year, subject to the applicable exemptions.

2. A new progressive rate of VRLT will apply to non-exempt vacant residential land based on the number of tax years the land has been liable for VRLT, as follows:

  • 1% of the capital improved value of the land for the first year the land is liable for VRLT where the land was not liable for VRLT in the preceding tax year;
  • 2% of the capital improved value of the land where the land is liable for VRLT for a second consecutive year; and
  • 3% of the capital improved value of the land where the land is liable for VRLT for a third consecutive year.

3. As of 1 January 2026, the definition of “vacant residential land” is expanded to include unimproved residential land that has been unimproved for 5 years or more in established areas of metropolitan Melbourne. Exemptions include land that is contiguous with a principal place of residence and land that cannot be used for residential purposes.

4. As of 1 January 2024, land tax apportionment between a vendor and purchaser under a contract of sale of land will be prohibited, except for high-value property transactions ($10 million or greater).

5. As of 1 January 2024, passing on Windfall Gains Tax (WGT) to a purchaser under a contract or option agreement entered into once a WGT liability has been assessed will be prohibited.

6. It will become an offence for a vendor to enter into a contract of sale of land that purports to require a purchaser to pay an amount for or towards the vendor’s land tax or known WGT liabilities.

7. The Act changes the frequency of some reporting requirements, including foreign purchaser additional duty exemption reporting and absentee owner surcharge exemption reporting (from 6 months to 12 months).

Key take-aways

1. The State Taxation Acts and Other Acts Amendment Act 2023 (Act) introduces significant changes to key pieces of property taxation legislation.

2. Vacant Residential Land Tax (VRLT) will apply to all vacant residential land in Victoria as of 1 January 2025.

3. Landowners who have entered into contracts of sale with settlement dates in 2024 and beyond will be unable to adjust land tax, or WGT. This may be result in a significant financial impact to landowners.

4. Vendors and purchasers should seek expert legal advice on the new prohibitions affecting adjustments of land tax and existing windfall gains tax liabilities and the new penalties for non-compliance with the reforms. The MST Property team is well-placed to assist you in ensuring compliance under the taxation reforms.

The MST Property and Leasing team are available to assist you with your property and leasing queries. Please contact Nasiya Goldberg, Senior Associate on (03) 8540 0727 or Evelyn Marcou, Principal on (03) 8540 0243. This article contains a general summary only – you should seek advice which is specific to your circumstances.