Buying or selling property in Victoria?
As of January 1st, 2024, new tax laws have come into effect that impact property transactions.
The new laws, effective from January 1, 2024, primarily concern land tax and windfall gains tax.
These changes are designed to improve price transparency for property purchasers and to ensure vendors are responsible for their tax liabilities.
Understanding these changes is crucial for both vendors (sellers) and purchasers (buyers) to avoid unexpected costs and delays.
Let’s have an in-depth look at them in this blog.
Key Changes In Land Tax And Windfall Gains Tax
Land Tax
- Previous Law: Previously, vendors could pass on their land tax liability to purchasers at settlement.
- New Law: From January 1, 2024, for properties sold for less than $10 million, vendors cannot pass on their land tax liability to purchasers. Properties sold for $10 million or more are exempt from this rule.
| Aspect | Previous Law | New Law Effective 2024 |
|---|---|---|
| Land Tax Liability | Can be passed to purchasers | Cannot be passed to purchasers (for properties under $10 million) |
| Exemption | Not specified | Properties sold for $10 million or more |
Windfall Gains Tax (WGT)
- Previous Law: Vendors could pass on windfall gains tax liability to purchasers at settlement.
- New Law: From January 1, 2024, vendors cannot pass on windfall gains tax liability assessed before the contract was entered into. This change affects properties intended for rezoning.
| Aspect | Previous Law | New Law Effective 2024 |
|---|---|---|
| Windfall Gains Tax Liability | Can be passed to purchasers | Cannot be passed to purchasers |
| Impact on Rezoning | Not specifically impacted | Makes obtaining vendor approval for rezoning difficult |
What This Means for You (Buyers and Sellers)?
For Sellers:
- Contracts: Most existing sale contracts allow land tax adjustments. You’ll need to review and potentially amend these clauses for contracts signed after December 31, 2023 (and under $10 million).
- Tax Responsibilities: Be prepared to pay any outstanding land tax yourself, as you can’t pass it on to the buyer.
- Rezoning Applications: Thinking of rezoning your property before selling? The buyer might be hesitant to pursue this since any windfall tax liability arising from successful rezoning would fall on them, not you (the seller).
For Buyers:
- Contract Review: Carefully examine the contract, especially clauses related to tax adjustments.
- Price Transparency: The purchase price should now reflect the true cost of ownership, including land tax.
- Rezoning Considerations: Be aware that sellers might be less likely to approve rezoning applications during the contract period due to potential windfall tax implications.
What About Other Costs?
These changes only affect land tax and windfall gains tax. Other outgoings like rates, water bills, and insurance premiums can still be adjusted at settlement as usual.
Penalties For Non-Compliance:
Contracts with clauses allowing adjustments in violation of these new rules will be unenforceable. This means:
Sellers will be responsible for the taxes themselves.
- Contracts may be deemed invalid.
- Penalties may apply (up to $60,000 for corporations per non-contact.
Impact On Property Development
These changes are expected to have a significant impact on property development. Here’s a breakdown of the potential effects:
- Price Increase: Property prices might increase to account for land tax and potential windfall gains tax.
- Rezoning Challenges: Obtaining seller approval for rezoning during the contract period might become more difficult due to windfall tax concerns.
Changes To Vacant Residential Land Tax (VRLT)
Starting from January 1, 2025, with occupancy considered from January 1, 2024:
- VRLT will apply to all land in Victoria, not just inner Melbourne.
- Properties vacant for 6 months in the previous year will be taxed.
- Tax rates range from 1% to 3% of the Capital Improved Value (CIV).
- The tax rate increases for consecutive years of vacancy.
Unimproved Residential Land
From January 1, 2026:
- VRLT will apply to undeveloped residential land in specific Melbourne council areas.
- Applies to land capable of development but left undeveloped for 5 years.
Key Takeaways For Property Buyers And Sellers
For Buyers:
- Expect potentially higher upfront property prices.
- Be cautious about rezoning plans during the contract period.
For Sellers:
Adjust pricing strategies to account for taxes you can’t pass on.
Be prepared for possible lower profit margins.
For Both:
Adjust pricing strategies to account for taxes you can’t pass on.
- Be prepared for possible lower profit margins.
Get Expert Help From KPG Taxation
The new tax laws for property sales in 2024 are complex and can be confusing. If you’re buying or selling property, it’s important to understand how these changes affect you. At KPG Taxation, we’re here to help. Our team of expert tax advisors knows all about these new rules and can guide you through them.
We can help you:
Understand how the new land tax and windfall gains tax rules apply to your property deal
Figure out if the Vacant Residential Land Tax affects your property
Make sure your contracts follow the new laws to avoid penalties
Plan your property sale or purchase to get the best financial outcome
