In May of this year, the Victorian government delivered their budget, including changes to their stamp duty and land tax regimes primarily focused on 'high value' transactions, being transactions of all land (residential, commercial, or otherwise) with a dutiable value over $2 million. These new measures took effect on 1 July 2021.

The Victorian government is also proposing a 'windfall gains tax' applicable on the increase in land value derived by landowners due to Council rezoning land.

Here, lawyer Luke Hefferan examines the effect of these changes on homeowners, home buyers, and developers together with the industry response.

Stamp duty amendments

The Victorian stamp duty regime now includes:

• High value premium rate: A duty rate of 6.5 percent for transactions with a dutiable value over $2 million (eg the stamp duty payable on these transactions will be $110,000 plus 6.5 percent of the value exceeding $2 million). This new premium rate also applies to purchases of an interest in a landholder (eg shares in a company, units in a trust) where the landholder has Victorian landholdings with an aggregate market value of more than $1 million. However, this new premium rate only applies to transactions entered on or after 1 July 2021, with any arrangements entered before this date, irrespective of when settlement of the purchase is completed, being exempt.
• Off-the-plan concession: The previous concession threshold of $550,000 (and $750,000 for first home buyers) has been temporarily increased to $1 million for home buyers who enter off-the-plan contracts after 1 July 2021, but on or before 30 June 2023.
• Concessions for buyers in the City of Melbourne: Buyers of new residential property in Melbourne with a dutiable value of up to $1 million are eligible for—
  • a 50 percent concession where the contract is entered into after 1 July 2021, but on or before 30 June 2022, and the property has been unsold for less than 12 months, or
  • a full exemption where the contract is entered into after 21 May 2021, but on or before 30 June 2022, and the property has remained unsold for 12 months or longer after completion of construction.

Land tax amendments

The Victorian land tax regime has been amended to provide:

• Land tax threshold: The previous land value threshold of $250,000 has been increased to $300,000 while the threshold for land held on trust has not changed and remains as $25,000.
• High value premium rate: The land tax rates will increase to—
  • 1.55 percent for land with a taxable value between $1.8 million and including $3 million, and
  • 2.55 percent for land with a taxable value above $3 million.
• New residential development exemption: The exemption has been extended for another two years meaning developers may apply for the exemption for up to two years from the 2022 land tax year.

Windfall gains tax

Given the Victorian government has not proposed a Bill to outline the framework for this regime, the proposal is still at a very 'high level'. At this stage, it is proposed landowners who receive an uplift in property value due to Council planning decisions to rezone the land will be taxed at a rate of 50 percent for uplifts of $500,000 or more with the tax phasing in from uplifts of $100,000 or more.

Again, there is little framework around the specifics of this proposed regime. However, we will follow the developments in this area as we suspect there will be consultation required with the industry about—

• any exemptions or transitional provisions for pre-existing development projects already in train before the regime is implemented
• how the windfall will be calculated
• the timing of payment of the tax. That is, will the tax be payable at—
  • the time of the (estimated) uplift being obtained, or
  • on the sale of the rezoned land when the uplift is realised and determined (and when the landowner receives the additional uplift funds in order to pay the tax).

Response from the industry

The industry response to these changes has been primarily negative.

The Victorian division of the Property Council of Australia (PCA) claims the changes will ultimately place an unfair burden on home buyers and homeowners resulting in an increase in property rental rates throughout Victoria. The PCA also claims anyone who has invested in Victorian property, especially as part of a retirement plan, will now need to reconsider those investments, given the additional tax burden associated with their properties.

The Real Estate Institute of Victoria (REIV) mirrors the PCA sentiments, also claiming the amendments may result in self-funded retirees, for which property investments is their only income, leaving the property investment space. The REIV claims this will impact the economy and the availability of jobs in the Victorian property sector which is already struggling due to the pandemic.

The Tax Institute, a leading forum for the tax community of Australia with a membership of over 11,000 tax professionals, has criticised the amendments as being out of step with recent changes in other jurisdictions, moving away from the general ambition of harmonisation of stamp duty and land tax regimes between all jurisdictions.

The Tax Institute also noted the new concessions and exemptions from stamp duty could essentially be cancelled out by the subsequent rises in land tax liability. It also noted the 'high value' $2 million threshold does not reflect the Victorian property market, with 15 Melbourne suburbs having a residential median price above this threshold and a vast majority of commercial/industrial transactions selling for a contract price well above this threshold amount.

Next steps?

Our Real Estate lawyers can help with any questions you may have about the impacts of these increases to stamp duty and land tax, as well as your eligibility for any available concessions or exemptions.