Victoria’s land tax changes: What do they mean for you?

October 16, 2023

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Proposed tax changes to Victorian vacant land has home owners highly concerned - but it may (or may not) help the state's housing supply issues.

Let's take a look at the ins and outs of the new tax.

What are the changes to Victoria's land tax?

Victorian Treasurer Tim Pallas announced the proposed new legislation on October 3 at a breakfast address of Property Council Victoria.

There are several sections to this new legislation, the biggest and most widely known being that of expanding the current vacant residential land tax (VRT or VRLT) to impact all of the state - and not just Melburnians.

The new legislation could also include changes to long-term unimproved metropolitan land as well as land tax liabilities.

1. Land tax expansion

Owners of vacant residential land in Victoria are already taxed.

However, from January 1, 2025, the new legislation will affect all such land owners - and not just the approximately 900 properties in Melbourne's 16 metropolitan council areas.

Both private and government-owned sites will be taxed as well.

The expansion would mean an extra 600-700 properties across the state will be taxed and return $6 million in revenue to the government.

NB: Holiday homes owned by one family are exempt from the expanded tax; however, those held by a company or most types of trusts are not.

2. Long-term, unimproved metropolitan land

In a second measure to the new legislation, Melbourne land that has not been improved or changed for five years or more will also be taxed from January 2026.

These additional 3,000 properties could see the new tax changes return a total of $37 million in government revenue every year.

3. Land tax liability changes

A third, lesser known, part of the land tax proposal is a change to land tax liabilities including windfall gains tax.

Australian-based multinational law firm, Minter Ellison, explains that the now common practice of apportioning land tax at settlement will be prohibited if the state government's proposal to amend the Sale of Land Act 1960 is passed.

"It will be an offence for a vendor to enter into a contract of sale that purports to apportion any land tax liability to a purchaser," Minter Ellison said.

Why has Victoria introduced a new land tax?

The State Government wants to see vacant, unimproved land developed into badly-needed housing.

Mr Pallas told the Property Council on October 3 that he doesn't want vacant land in Melbourne "sitting idle year on year".

Instead, such land assets should be "rationally and fairly utilised to look after those who desperately need a home", Mr Pallas said.

"Our clear message to the landowners is to either develop the land or sell it to someone who will,” the Treasurer explained.

"Similarly, we‘re not putting in place a rule for landowners that we as a state are not going to apply to ourselves. 

"We expect every government agency that is holding land to justify exactly why they’re holding that land and not putting it into the marketplace.”

Victoria's land tax changes
Victoria's land tax: Develop vacant land into housing or sell it to someone who will - a message from the State Government

How will the new land tax affect home owners?

However, those in the real estate industry and legal sectors aren't confident about the potential changes.

Accounting and business advisory firm, Pitch Partners, is particularly concerned about the land tax liability amendments, describing them as a "seismic shift" in the way Victoria’s land tax regime currently operates.

"It is unclear what the changes are trying to achieve," the firm explained in a recent article.

"We understand the rationale provided for the changes is consumer protection. 

"However, the changes apply indiscriminately to all vendors and purchasers of land from 1 January 2024.

"Many will be left scrambling to deal with the new measures in time, with the costs of getting it wrong quite significant."

Urban Development Institute of Australia chief executive, Linda Allison also told The Financial Review that the new changes were a frustration rather than a real help.

"We want to collaborate and find solutions to the housing affordability crisis but we’ve consistently said taxing our way out is not the answer," Ms Allison said.

Will the new Victorian land tax increase property supply?

No, it won't, said Property Update's Michael Yardney.

"It might help to free up a few properties, but it’ll be a drop in the ocean of what is needed to help boost enough supply," he said.

"Tax expansion plans also don’t take into consideration many other headwinds facing developers and the construction industry, which will be targeted most under this new plan."

Mr Yardney added that it's likely that the tax changes will drive investors away from the market - with many already leaving in droves due to similarly increasing costs.

"(This) isn’t a move supportive of attracting more private property investors to supply rental accommodation," Mr Yardney said.

Let us help you

Whether you're a Victorian worried about the new tax changes or another Aussie keen to buy or sell a property, Listing Loop can help you.

As Australia's leading marketplace for off-market, pre-market and "secret" listings, we have an extensive portfolio of stunning off-market properties for you to choose from.

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