The important property taxes you should be aware of

With the commencement of the new year, it has brought with it major Victorian property tax changes which came into effect from 1st January 2024. For those of you thinking of selling or purchasing a property, it is helpful to be informed about these changes, as they can be hidden costs that you may be unaware of.

Land Tax Changes

The new law prevents the adjustment of land tax between the vendor and purchaser in Contracts for the sale of land, except in contracts in excess of ten million dollars. This new law applies to all contracts entered into and signed subsequent to 1st January 2024.This means that when selling a property, the Vendor will be responsible for all land tax payable on a property. Contracts of Sale that were entered into and signed prior to 1st January 2024 will still have the land tax adjusted proportionately at settlement and the new legislative changes do not apply to these Contracts.

This means that the purchaser will pay the proportion of the land tax assessment for the period in which they will own the property in the specified calendar year, whilst the vendor will pay the proportion for the period in which they owned the property in the specified calendar year.

Changes to Windfall Gains Tax

Recent legislative changes also prevent the passing on or adjustment of any Windfall Gains Tax (“WGT”) liability that has been assessed on the subsequent sale of land, with the Vendor now responsible for the WGT pertaining to all contracts entered into from 1st January 2024. Vendors are liable to WGT where a government rezoning results in a taxable value uplift to their land of more than $100,000. The taxable value uplift is the difference in the capital improved value of the land before and after the rezoning takes effect. There are a number of exemptions and exclusions from the WGT including residential land exemptions and land rezoned to or from the Urban Growth Zone within the Growth Areas Infrastructure contribution.

Vacant Property Tax

Properties that are vacant, are subject to a Vacant Residential Land Tax. From 1st January 2025 the Victorian Government will implement changes to the Vacant Residential Land Tax which will apply to all properties that have not been occupied for six months, in the previous twelve month period. This means that if your property is vacant for more than six months, between 1st January 2024 and 31st January 2024, you may be affected by this change.Properties that are deemed to be vacant are taxed at a rate of 1% of the capital improved value of the property in the first year, 2% in the second year and 3% in the third and subsequent years. By way of example, if you have a vacant property with a capital improved value of $1 million dollars the vacant residential land tax would be $10,000 in the first year, increasing to $20,000 in the second year and $30,000 in the third and subsequent years. There are some exceptions to this, including holiday homes that are occupied by the owner for at least four weeks each year and change of ownership during the year.

Selling

Thinking of selling? 

Land Tax assessments are now starting to flow through from the State Revenue Office and with it some significant increases in the land tax assessed particularly when you own multiple properties, due to the market value threshold being reduced, meaning the calculation of land tax has become greater. If Land Tax applies to you and you have recently received an assessment or are about to receive an assessment, this is a timely reminder to check those assessments.  Check that the correct property has been noted as your Principal Place of Residence.  Similarly, if you have bought a new home but not yet sold your Principal Place of Residence within the same assessment year, have a discussion with your Financial Advisor and/or the State Revenue Office around any concessions that may apply to you.  Many investment properties are units, and historically may not have been subject to land tax due to the lower market value.  Many of those investment properties are now being assessed with land tax.  The threshold for land tax assessments has been reduced to properties whereby the market value is deemed to be $50,000 or more and is payable on a sliding scale.  This is in comparison to the previous year (2023) whereby land tax would have been assessed on properties with a market value greater than $300,000.

For further information around land tax, we strongly suggest you seek appropriate financial and legal advice.