The Victorian government has introduced a range of new or increased taxes in recent times. This article provides a brief summary on some of the recent changes to Victorian taxes relating to real estate.
Commercial and Industrial Property tax
From 1 July 2024 the Commercial and Industrial Property tax (CIPT) commenced. This new tax relies on phasing out transfer duty over a 10-year period on Commercial and Industrial Property and replacing the upfront duty on subsequent transfers with an annual tax.
Broadly, CIPT is applicable to properties with a ‘qualifying use’ where the transaction relates to at least a 50% interest in the property on or after 1 July 2024.
CIPT will apply to a property at a flat rate of 1% of the property’s unimproved value each year. This tax applies 10 years after the property enters the CIPT regime.
For more information refer to the DBA Lawyers article here.
Windfall Gains Tax
Since 1 July 2023, a Windfall Gains Tax (WGT) has been applied to land rezoned by the same planning scheme amendment resulting in a value uplift to the land of more than $100,000.
Where the uplift increases value between $100,000 and $500,000, the tax will apply at a marginal rate of 62.5% on the uplift above $100,000. Where the taxable value uplift exceeds $500,000, a tax rate of 50% will apply to the total uplift. The payment of WGT can be deferred for up to a 30 year period provided the ownership does not change.
A variety of exemptions and exclusions exist from WGT depending on features such as the type of zoning change or the nature of the land.
The SRO website includes a more detailed explanation of the WGT available here.
Foreign Purchaser Additional Duty
Foreign Purchaser Additional Duty (FPAD) is an additional 8% land transfer duty on residential property where the purchaser is a ‘foreign person’ which includes a foreign natural person, foreign corporation and trustee of a foreign trust.
This duty was introduced in 2015 as a 3% additional duty rate. Since then it rose to 7% for transactions between 2016 and 2019, and since 2019 it has risen to 8%.
Importantly, a discretionary trust will be a foreign trust where any beneficiary of the trust is a foreign person. If appropriate, trust deeds should be carefully drafted or amended to minimise the risk of FPAD applying to the purchase of a residential property in Victoria. Numerous other jurisdictions in Australia have an equivalent tax but there are differences between the different regimes.
DBA Lawyers has written articles in relation to how the FPAD may impact discretionary trusts and the developments of this tax around the country, for more information on this click here.
Absentee Owner Surcharge land tax
In 2016, surcharge land tax provisions for ‘absentee owners’ including trustees of ‘absentee trusts’ were introduced to the Land Tax Act 2005 (Vic) (LTA). These provisions, among other things, impose an ‘absentee owner surcharge’ of 4% on the total taxable value of Victorian land on absentee owners and absentee trusts. This tax was previously 2% for the 2020 to 2023 land tax years, 1.5% for the 2017 to 2019 land tax years, and 0.5% for the 2016 land tax year.
If appropriate, trust deeds should be carefully drafted or amended to minimise the risk of this surcharge applying. Numerous other jurisdictions in Australia have an equivalent tax but there are differences between the different regimes. For more information refer to the DBA Lawyers article available here.
Economic entitlement duty
In 2019 the ‘economic entitlement’ provisions were inserted into the Duties Act 2000 (Vic) for the purpose of imposing duty on arrangements where a person, without acquiring an ownership interest in land, nevertheless obtains benefits typically reserved for a landowner. The land must have an unencumbered value of more than $1 million before these provisions apply.
In equating economic entitlements in relation to land with obtaining beneficial ownership in the land in proportion to the economic entitlement obtained, the individual who receives an economic entitlement is charged with transfer duty (as if a change in beneficial ownership has occurred). A person can acquire an economic entitlement by sharing in the income, rents, profits, capital growth or sale proceeds from the land or by receiving any amount determined by reference to any of these factors.
These provisions can also apply to acquisitions of shares in companies and units in unit trust schemes that are not covered by the landholder provisions in the Duties Act 2000 (Vic).
The SRO provides detailed explanation of the economic entitlement duty on their page, available here.
Growth Areas Infrastructure Contribution
Growth Areas Infrastructure Contribution (GAIC) is a one-off contribution to infrastructure in certain Melbourne suburbs. It is payable upon certain events relating to buying, subdividing or applying for relevant building permits.
The calculation of the GAIC rate is indexed according to the Consumer Price Index (CPI) and for the 2024/25 financial year, is between $115,000 and $137,000 per hectare depending on the type of land involved.
For more descriptive explanation of GAIC, the State Revenue Office provides explanatory materials for current rates and application.
Vacant Residential Land Tax
Victoria’s Vacant Residential Land Tax (VRLT) applied to inner and middle suburbs in Melbourne from 1 January 2018. From 1 January 2025 VRLT was extended to all vacant residential land throughout Victoria. Broadly, a property is deemed vacant unless it is used and occupied for more than 6 months in the prior calendar year.
It will also apply to holiday homes, unless the holiday home exemption (HHE) is satisfied, or another exemption applies. The HHE applies if the property is used and occupied for at least 4 weeks by the owner or in some cases, a relative of the owner. The HHE may apply even if the holiday home is owned by a company or trust provided certain tests are satisfied.
VRLT is an annual tax calculated as 1% of the capital improved value (CIV) of vacant residential land. From 1 January 2025, the tax after the first year of vacancy increases to 2% of CIV if the property remains vacant for a second year, and 3% of CIV if the property remains vacant for a third or subsequent year.
VRLT is in addition to land tax and the other taxes discussed in this article. For an article that provides greater discussion on the calculation of VRLT as well as the exemptions available refer to DBA Lawyers article, available here.
Short stay levy
From 1 January 2025, Victoria will apply a new short stay levy of 7.5% on total booking fees for short stay rentals, ie, rentals of less than 28 days.
This levy is payable quarterly where owners/renters are receiving in excess of $75,000 per annum, and payable annually where owners/renters receive less than $75,000 per annum.
This levy does not apply to an individual who rents out their principal place of residence (PPR) provided the rental does not involve a separate residence (even if located on the same land as a person’s PPR) such as a granny flat, caravan or a tiny home. It will not apply to a stay in a hotel, motel or similar accommodation.
Refer to our article explaining when and how the short stay levy can impact landholders and those involved in short stays here.
Congestion levy
Owners and operators of off-street car parking located in the Melbourne CBD and surrounding suburbs are liable to pay an annual congestion levy.
Some exemptions exist where the car park is used for residential parking, parking for visitors such as clients and customers, or where it is used for disabled persons or emergency services.
This levy was introduced in 2006, calculated as $400 in a smaller Melbourne CBD region, and over time it has increased rapidly between 2011 and 2014, rising from $400 to $1,300 in this time. Since then, it has steadily increased to $1,690 for Category 1 areas and $1,200 for Category 2 areas in 2024.
The levy is proposed to increase from 1 January 2026 from the current amount of $1,750 to $3,030 for Category 1 and from $1,240 to $2,150 for Category 2. The levy assessment is calculated based on the use of parking spaces in the preceding calendar year.
Fire services property levy
Since 1 July 2013 property owners have been required to pay an annual levy via council rates to support emergency services.
This is calculated by councils, and their performance in collecting the levy is monitored by the SRO.
The levy is calculated by a fixed charge plus a variable charge less relevant concessions. The fixed charge differs based on whether the land is residential ($132) or non-residential ($267) and is indexed according to CPI. The variable charge is dependent upon the classification of the property. For residential property, this has risen from 8.7 cents per $1,000 of a property’s CIV to 17.3 cents per $1,000. A substantially higher variable levy applies for primary production, commercial and industrial property.
From 1 July 2025, the levy will be renamed the ‘emergency services and volunteers fund’.
A more detailed explanation of the Fire Services Property Levy exists on the SRO website, available here.
Conclusion
The GST was introduced in mid-2000 to replace numerous inefficient and cumbersome state taxes. However, both Federal and state taxes on property have expanded considerably since then making the holding and development of property in Victoria complex and less profitable.
Due to the number of taxes impacting property owners, the substantial recent increases in these taxes and the complexity of other laws, property owners including SMSF trustees should seek advice to see if holding property is viable.
Advisers will need to stay on top of these issues to be able to provide appropriate guidance.
Related articles
- https://www.dbalawyers.com.au/announcements/victorias-new-short-stay-levy/
- https://www.dbalawyers.com.au/announcements/your-discretionary-trust-may-unwittingly-be-subject-to-extra-duty/
- https://www.dbalawyers.com.au/announcements/nali-e-urgent-fix-still-needed/
This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2001 (Cth).
For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.
By Daniel Butler ([email protected]), Director, and Shaun Backhaus, ([email protected]), Director, DBA Lawyers.
DBA LAWYERS
8 January 2025
