Navigating the land taxes regime – Victorian land owners must keep up with changing tax rules

Many Victorian land owners and investors are feeling uneasy as they await the 2024-25 state budget, to be delivered on 7 May 2024.  Will the government use this budget as a further opportunity to balance its post-COVID-19 budget deficits with more taxes on commercial landowners?

In recent years, the Victorian government has introduced two significant new landholding taxes through the budget (windfall gains tax (WGT) and the commercial and industrial property tax (CIPT)).  The government has also implemented multiple tax rate increases (land tax COVID-19 debt levy, absentee owner surcharge (AOS) and an additional stamp duty threshold rate introduced), the imposition of vacant residential land tax (VRLT) and the abolishment of the corporate reconstruction exemption for eligible corporate group transactions having been replaced by a 90% concession.    

The complexity of the various imposts means more taxpayers are seeking professional advice to understand their obligations and any available concessions or exemptions. They should also revaluate the assumptions in their investment and feasibility models to ensure that they account for the impact of tax regime changes.  

Ahead of any further announcements in the 2024-25 budget, we have summarised some of the significant landholding taxes and charges that apply in Victoria.

1. CIPT

CIPT will apply to commercial and industrial property transactions that have both a contract and settlement date on or after 1 July 2024. Upon settlement, a purchaser will have a choice to either pay stamp duty one final time or, for purchasers who meet certain criteria (including that the property is valued at $30 million or less), finance the stamp duty through a government-facilitated transition loan. The annual CIPT will then become payable 10 years after the final stamp duty payment, regardless of whether that property has transacted again.

CIPT will be charged at 1% (0.5% for eligible build to rent land) of the site value. While there is no tax-free threshold, certain properties are excluded from the CIPT regime. If land becomes CIPT tax reform land and later has a change of use, change of use duty will be payable.

For further information on the CIPT, including potential exemptions, please refer to our previous Insight article:

• Victorian Commercial and Industrial Property Tax detail announced

2. Land Tax

Land tax is payable in Victoria annually, excluding any exempt land (for example principal place of residence). It is charged on the site value of land. The rate at which land tax is imposed varies depending on the taxable value of all Victorian land held by a landowner and whether or not the land is held by a trust. Trusts pay a surcharge rate of land tax where land is valued at up to $3 million. Over this amount there is no difference between the general and trust surcharge land tax rates. Taxpayers must notify the Commissioner of certain things, including if they are an absentee owner and liable to pay AOS or if they hold any VRLT land.

AOS

AOS is charged under the Land Tax Act 2005 (Vic) (LTA) as part of the land tax assessment in addition to land tax paid at general or trust rates. The AOS was doubled to 4% from the 2024 land tax year.

The AOS is payable by an absentee owner. An absentee owner means an absentee person who is an owner of land.  An absentee person means a natural person absentee, an absentee corporation or a trustee of an absentee trust. An absentee corporation is defined to mean a corporation that is incorporated outside Australia or a corporation in which an absentee person has an absentee controlling interest.

An absentee person has an absentee controlling interest in a company if the absentee person, or that person acting together with another absentee person:

• can control the composition of the board of the corporation; or
• is in a position to cast or control the casting of more than 50% of the maximum number of votes that might be cast at a general meeting of the corporation; or
• hold more than 50% of the issued share capital of the corporation.

Certain entities may be able to apply to the Commissioner for an exemption from the AOS. We discuss the available Victorian exemption in this JWS Insight Is your organisation eligible for a land tax foreign surcharge exemption in Victoria or Queensland?

VRLT

VRLT is a further charge imposed under the LTA. It applies to residential properties that have been vacant for more than 6 months within a calendar year (noting this does not need to be a continuous 6 months).  Certain exemptions can apply in respect of VRLT.

VRLT is currently charged at 1% of the capital improved value (CIV) of taxable land and is only charged to eligible properties in the local council areas of Banyule, Bayside, Boroondara, Darebin, Glen Eira, Hobsons Bay, Manningham, Maribyrnong, Melbourne, Monash, Moonee Valley, Merri-bek, Port Phillip, Stonnington, Whitehorse and Yarra.

However, from 1 January 2025, VRLT will apply to all residential land in Victoria that is vacant for more than 6 months.  In addition, a progressive rate will be introduced that imposes VRLT at 1% - 3% of the CIV depending on how long the property has been vacant for.

From 1 January 2026, VRLT will also apply to all unimproved residential land in metropolitan Melbourne that has remained undeveloped for at least 5 years and is capable of residential development.

For further information on the recent changes to the VRLT rates see this Insight Taxing Times – Victoria prohibits apportionment of land tax and windfall gains tax

3. WGT

From 1 July 2023, WGT is imposed on the value of gains made by landowners due to certain government rezoning decisions. WGT is payable by the owner of the land when the WGT event occurs. This means a landowner can become liable for WGT without a dutiable transaction or relevant acquisition taking place. Taxpayers can choose to defer up to 100% of the WGT until a dutiable transaction or relevant acquisition occurs or for up to 30 years (whichever occurs first). Certain dutiable transactions and rezonings are excluded from WGT (e.g. rezonings relating to public land zones and to and from the Urban Growth Zone within the Growth Areas Infrastructure Contribution (GAIC) area) and a number of limited exemptions are also available.

WGT is imposed on the CIV of land at:

• 62.5% of the part of the taxable value uplift for land that is more than $100,000 but less than $500,000; or
• 50% or more if the total taxable value uplift is $500,000 or more.

For further information on WGT  see this JWS Insight Victoria’s newest property tax – Windfall Gains Tax   

4. GAIC

GAIC is a fee imposed in some of Melbourne’s expanding municipalities, referred to as the contribution zone. GAIC is a one-off contribution which is used to fund infrastructure development in these areas.

The contribution area refers to growth area land zoned for urban use and development in the following municipalities: Cardinia, Casey, Hume, Melton, Mitchell, Whittlesea and Wydnham.

The first of any of the following four events will trigger a GAIC liability on affected land in a contribution area:

• transfers of title;
• the issue of a statement of compliance (SOC) for a plan of subdivision;
• an application for a building permit; or
• significant acquisitions in a landholder that owns land subject to landholder duty.

If GAIC-affected land is sold or transferred, the new owner of the affected land is liable to pay GAIC. In the case of a significant acquisition, both the acquirer and the landholder are jointly and severally liable. Otherwise the owner of land when the SOC is issued, or the building permit is granted, is liable. If a GAIC liability arises from the certification of a non-SOC plan of subdivision, the person whose land is being acquired by the acquiring authority will usually be liable.

Certain dutiable transactions in contributions areas are exempt from GAIC.  However, a GAIC exemption does not extinguish liability in respect of land, instead it only postpones the liability to a subsequent GAIC event, unless an appropriate exemption also applies to the subsequent event.

The GAIC rates increase annual by CPI. The rates for the 2023-24 year are:

• $110,590 per hectare for type A land
• $131,360 per hectare for types B-1, B-2 and C land.

5. Local government rates and levies

Local government rates are annual charges that councils in Victoria impose in order to fund local infrastructure and services. Each council sets the rates for their municipality through their budget. Rates are calculated on the CIV of land. 

Rates are calculated by distributing the burden across all rateable properties in a municipality and a variable ‘rate in the dollar value’ is applied to properties based on their value. Certain categories of land, including commercial properties, may attract a higher or lower ‘rate in the dollar’. For the 2024-25 financial year, Victorian council rate rises have been capped at 2.75%.

Councils also impose certain annual levies which can vary between councils in order to support council administrative costs, as well as special levies to assist in the delivery of projects that benefit a select number of landowners.  For example, the Mornington Peninsula Shire recently proposed a 3.3% social housing levy on all new developments within the region. If implemented, it could serve as an indication that other councils may also adopt similar social housing levies, which are likely to be passed on to ultimate purchasers.

6. Fire Services Property Levy (FSPL)

In Victoria, the FSPL is collected by local councils to maintain emergency services within the municipal area. The levy is imposed on the CIV of land and is charged through the council rate notice. The FSPL varies depending on the property classification and has both a fixed and variable component. For non-rateable land, the FSPL is collected via a separate notice. Late last year certain wind and solar projects were reclassified as being for the public benefit, such that the value of fixtures or items fixed to land will not be included in the calculation of the FSPL in respect of these projects.

Examples – what landholding taxes are likely to be payable?

Disclaimer: The information in this Insight is of a general nature only and is not intended to be legal advice. These are general examples and the specific taxes that are imposed will vary depending on the particular circumstances of each taxpayer.