Important changes to property tax laws affecting vendors and their contracts of sale of land
The State Taxation Acts and Other Acts Amendment Act 2023 (Vic) has recently been passed by Parliament and introduces significant changes to property tax laws in Victoria, some of which will have an impact on vendors selling their property.
The changes include a prohibition on the adjustment of land tax between a vendor and purchaser in land sale contracts entered on or after 1 January 2024. This means that a vendor will no longer be able to adjust their land tax liability against a purchaser at settlement, i.e., a purchaser can no longer be required to contribute an amount towards a vendor’s land tax liability. The new law does not apply to contracts entered on or before 31 December 2023 (even if they settle on or after 1 January 2024). It also does not apply to contracts where the price exceeds $10 million (indexed annually).
The new laws also prevent the adjustment or passing on of a windfall gains tax (“WGT”) liability that has been assessed at the time the contract is entered into. This means that a vendor cannot include a clause in a contract which requires the purchaser to contribute an amount towards an existing WGT liability. However, a clause in a contract that seeks to apportion WGT where a notice of assessment of WGT has not been issued at the time the contract is entered into is still permitted. This prohibition also only applies to contracts entered on or after 1 January 2024.
WGT is a recently introduced tax that applies to certain land that is rezoned on or after 1 July 2023, where the rezoning results in a ‘value uplift’ (i.e., an increase in the Capital Improved Value) of the land of more than $100,000. It is the ‘value uplift’ that is the taxable sum.
Any clause that seeks to adjust land tax or existing WGT liabilities against purchasers will not be enforceable. Additionally, it is an offence for a vendor to enter a contract that attempts to require a purchaser to contribute towards the vendor’s land tax or existing WGT liabilities. Vendors who breach the new laws may be liable to penalties.
For further advice regarding these new changes, please feel free to get in touch with one of our property lawyers on 03 5331 4444 or via email@example.com
Author: Meg Fritsch
Published: 23 January 2024