Land tax increases

As part of its "COVID Debt Repayment Plan", the Victorian Government announced a range of land tax increases which will apply for a 10-year period starting from 1 January 2024. The changes do not impact land already exempt from land tax such as family homes and primary production land.

The changes include:

• A reduction in the tax-free threshold from AUD 300,0000 to AUD 50,000. This will likely result in many taxpayers now being caught in the land tax net.
• An increased rate of land tax by 0.1% for owners holding land with a taxable value over AUD 300,000 (or AUD 250,000 for land held in a trust).
• Fixed charges of AUD 500 for taxable landholdings with a value between AUD 50,000 and AUD 100,000 and AUD 975 for taxable landholdings with a value exceeding AUD 300,000.

In addition, the government also announced:

• An increase of the absentee owner surcharge rate from 2% to 4%, with the minimum threshold for non-trust absentee owners set to decrease from AUD 300,000 to AUD 50,000. 
• Expansion of the principal place of residence exemption for land under construction or renovation if a builder goes into liquidation. The Commissioner may extend the exemption for up to two additional years.

Proposed annual property tax – commercial & industrial

The Victorian Government also announced that land transfer duty for commercial and industrial properties will be abolished and replaced with an annual property tax from 1 July 2024. The Government expects to make further announcements by the end of 2023. 

Commercial and industrial properties will transition to the new tax as they are sold, with:

• First purchasers after 1 July 2024 will still be required to pay the property's final transfer duty liability, but can do so either as a lump sum or in fixed instalments with interest over 10 years.
• An annual property tax of 1% of the property's unimproved land value payable after a transition period of 10 years after the transaction.

The changes will not apply to the current owner of any commercial or industrial property purchased before 1 July 2024.

A number of questions about the new tax remain unanswered, such as:

• How the government will determine which properties are 'commercial' and 'industrial'
• How the tax will be administered, for example for properties containing a mixture of residential and commercial premises
• What transitional measures will there be, for example for properties settling on or after 1 July 2024 pursuant to a contract or other agreement entered into before that date
• What will happen if the property is sold again within 10 years of the initial transfer bringing the property into the new regime
• What and if any exemptions/concessions will apply

The impact for taxpayers will be varied. On the one hand, the annual property tax regime means reduced upfront costs for purchasers and perhaps a greater ability for purchasers to transfer properties between related entities. On the other hand, it appears that taxpayers purchasing commercial or industrial property after 1 July 2024 will be subject to both a transfer duty liability and the new annual property tax after 10 years. Accordingly, purchasers (and vendors) will need to carefully consider, based on their own circumstances, whether a proposed acquisition/sale should occur before 1 July 2024.

Proposed tourism levy

Daniel Andrews confirmed a new 'tourist tax' is being considered by the State Government. It is being proposed to address the impact that short stay/homestay accommodation is having on the supply of long-term rental homes.

The tax would take the form of a AUD 5 levy on short-term rental and commercial accommodation (i.e., hotel) bookings. As the cost of the levy would likely be passed onto the guest, the question is whether it will create an extra economic burden on the guest and potentially impact tourism-related industries in Victoria. 

More detail is expected later this year.

Proposed new residential rental caps

The State Government also initially considered implementing a cap on rent increases and limiting rent raises to once every two years (an increase from the current 12-month limit), as part of the state government's plans to overhaul Victoria's housing policy. However, the cap on rent increases has since been abandoned on the basis that it would deter investment in new housing, with Daniel Andrew saying "I'm ruling out anything that would see us with less housing."

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Please contact the authors for further information or assistance on how the proposed changes affect you.