Important tax changes in Victoria ahead of further significant reforms

By Jinny Chaimungkalanont and Mark Peters

The State Taxation Acts and Other Acts Amendment Bill 2023 was introduced into the Victorian Legislative Assembly yesterday (4 October 2023), proposing numerous changes to Victorian state taxes ahead of further reforms scheduled for 1 July 2024.

• The Bill contains important changes to the Property Law Act and Sale of Land Act to prohibit apportionment of land tax and windfall gains tax, with a vendor prohibited from recovering these taxes from a purchaser.
• It will no longer be possible to access multiple duty concessions for a corporate reconstruction involving ASX listed entities and other public landholders.
• Stamp duty corporate reconstruction relief rules will be expanded to include certain sub-sale transactions.
• Changes to the Valuation of Land Act to deem fixed items as fixtures when valuing the capital improved value of land will have significant impact on renewable operators in Victoria.
• Expanding the scope of the Vacant Residential Land Tax so that it applies to vacant residential property across Victoria, rather than being confined to certain areas of Melbourne.

The more significant changes are summarised below. Most amendments will commence the day after Royal Assent, unless otherwise noted below.

Land tax and windfall gains tax cannot be passed on to a buyer

Currently the usual land sale contract will provide that land tax is paid by the vendor until the date of settlement, with an apportionment made at settlement to reflect this position. The amendments to the Property Law Act 1958 (Vic) and Sale of Land Act 1962 (Vic) will prevent land tax from being apportioned. Windfall gains tax assessed on or before the contact date will similarly be excluded from apportionment. In particular, the vendor cannot require the purchaser to pay any amount towards land tax, or windfall gains tax under a notice of assessment issued on or before the contract date.

A contract provision contrary to the above is void, and penalty provisions apply. The amendments are proposed to take effect from 1 January 2024.

Restructures involving ASX listed or other public landholders

Corporate reconstruction / consolidation / top hat concessions will no longer apply on top of the concessional rate applicable to acquiring an interest in a public landholder (effective duty rate of 0.065%). For example, a restructure that occurs immediately after a takeover of an ASX listed entity, or restructure transactions to interpose a non-operating holding company between an ASX listed entity and its shareholders, would no longer be eligible for relief in addition to the public landholder concession. The proposed amendments will result in the imposition of usual duty rates on acquiring the public landholder (6.5%), with reconstruction / consolidation / top hat concessions applying to reduce the rates to effectively 0.65%.

Stamp duty relief for sub-sale transactions within a corporate group

The Victorian sub-sale rules generally apply to impose double duty where a person enters into an option or contract, and another person (e.g. a nominee) ultimately takes a transfer of the land in circumstances where land development occurs, or additional consideration is provided (e.g. a nomination fee or where the transferee enters into a building contract with a builder who was the original grantee under the option or the purchaser under the contract). Where the sub-sale rules apply, duty is imposed twice when the transfer occurs.

By way of example, where A contracts to sell land to B, and B nominates C in return for a nomination fee, without the corporate reconstruction concession applying, 2 lots of duty would be payable when A transfers land to C: duty on the sale contract to B, and duty on the nomination to C.

• Where A and B are members of the same corporate group, the amendments will allow the corporate reconstruction concession to apply, so that the duty on the sale contract between A and B is calculated at the concessional rate of 10% of the duty otherwise payable.
• Where B and C are members of the same corporate group, the amendments will allow the corporate reconstruction concession to apply, so that the duty on B nominating C is calculated at the concessional rate of 10% of the duty otherwise payable.
• If A, B and C are all members of the same corporate group, concessional duty will apply to the duty on the sale contract, and an exemption will apply to the duty on the nomination.

Land valuation amendments: land to included fixed infrastructure and other items

The Valuation of Land Act 1960 will be amended to deem certain fixed items as a fixture (and forming part of the land value), in determining the capital improved value of land. A fixture will extend to anything that constitutes a fixture at law as well as any other item fixed to the land (whether owned by the land owner or other occupier), with corresponding impact on land taxes such as rates, fire services levy, vacant residential land tax and windfall gains tax.

These amendments will have significant impact on renewable operators in Victoria. In 2021, the Victorian Supreme Court held in the Ararat Windfarm decision that the above-ground assets at Ararat wind farm were chattels at law and did not form part of the land to be valued for fire services levy purposes (see our note on this here: Fire Services Levy | Energy notes (hsfnotes.com)). The above amendments effectively reverse the outcome of this decision.

Vacant residential land tax will broaden in scope

The proposed amendments will also expand the scope of vacant residential land tax (VRLT). The VRLT presently applies to homes in inner and middle Melbourne that were vacant for more than six months in the preceding calendar year. The VRLT is a per annum tax imposed at the rate of 1% on the capital improved value of the land. The key changes provide that VRLT:

• will extend to all vacant residential land in Victoria, from 1 January 2025; and
• will extend to include certain unimproved land (generally land which has been unimproved for 5 years or more) in Metropolitan Melbourne from 1 January 2026.

New exemptions will also be introduced for land contiguous to a principal place of residence and for land that cannot be used or developed for residential purposes.

Further changes to come

These proposed amendments are ahead of further significant reforms to Victorian State taxes, with the previously announced replacement of stamp duty on commercial and industrial property with an annual property tax scheduled for 1 July 2024. See our prior article on this here: 2023-24 Budget Update: Key changes to Australian state taxes | Tax Australia notes (hsfnotes.com)