Major Amendments to Stamp Duty and Land Tax in Victoria: The winners and losers

Giancarlo Romano
17 June 2021

The Victorian budget delivered on 20^th May 2021 proposed some highly controversial and almost immediate amendments to stamp duty and land tax legislation as well as a ‘Windfall Capital Gains Tax’ on gains made on a rezoning of property.

The State Taxation and Mental Health Acts Amendment Act 2021 (the Act), which received Royal Assent and was enacted into law on 16 June 2021, introduces various revenue and tax relief measures designed to curb the economic havoc wrought by the ongoing Covid-19 pandemic and to help stimulate property development in the areas where it is needed most.

The Act and its various amendments to other Victorian legislation will take effect as and from 1 July 2021 and will be in operation for at least 18 months, until 1 January 2023. These legislative changes are now discussed below.

Stamp Duty

Broadly, the following major amendments have been enacted for Stamp Duty:

1. introduce a new premium general rate of stamp duty of 6.5% for contracts signed after 1 July 2021 for transactions with a dutiable value over $2million, increasing the previous highest general rate of 5.5% which will now only apply to properties of between $960,000 and $2million (NB: this applies also to acquisitions in ‘landholders’ being unit trusts/company shares which hold more than $1mil in land); and
2. a temporary increase for the existing ‘off the plan’ concession threshold to include those valued up to $1million for certain contracts entered into from 1 July 2021 to 30 June 2023; and
3. temporary stamp duty exemption for purchases of certain new, unoccupied homes built in Melbourne with a dutiable value of $1million or more if they have had an occupancy permit for more than 12 months and are under contract between 21 May 2021 and 30 June 2022; and
4. temporary stamp duty concession of 50% for purchases of certain new homes built in Melbourne sold under contract between 1 July 2021 to 30 June 2022.

Land Tax

The Act also includes the following major amendments for Land Tax:

1. an increase in general land tax rate for properties valued over $1,800,000 to $3,000,000 from the 2022 land tax year onwards to an amount of 1.55% instead of the current 1.3% per annum;
2. an increase in general land tax rate for properties valued over $3,000,000 from the 2022 land tax year onwards to an amount of 2.55% instead of the current 2.25% per annum;
3. an increase in the minimum land tax threshold from $250,000 to $300,000 (meaning properties with land value below $300,000 will not pay land tax) from the 2022 land tax year onwards;

The new premium general rate of 6.5%, when coupled with the foreign purchaser surcharge rate of 8% could effectively mean that foreign purchasers potentially pay stamp duty at a rate of up to 14.5% on purchases of residential land, which one would expect might further deter foreign investment in our residential property market.

In addition, the following amendments enacted may have significant impacts on property developers:

1. the exemption for vacant residential land tax for new developments is extended to apply for up to 2 land tax years where the land has not been used or occupied and has not changed in ownership (ie. intended to allow developers more time to build without being subject to additional land tax); and
2. for calculation of land tax liability, in relation to land owning structures involving partnerships, a partner is taken to have a beneficial interest in each item of partnership property in the same proportion as the partnership’s interest (ie. these amendments are intended to align with similar partnership/economic entitlement provisions which were introduced into the Duties Act 2000 in 2018 following the decision in Commissioner of State Revenue v Danvest Pty Ltd [2017] VSCA 382).

Windfall Gains Tax

Thankfully, the tax on rezoning (also referred to as ‘windfall gains tax’) was not included in this Act. This tax was proposed to levy a rate of up to 50% of any profits over $500,000 that may be made by landowners where those profits are made as a consequence of planning decisions to rezone ex-industrial land, or create new residential estates. This is said to not apply to any property within a Contribution Area for Growth Areas Infrastructure Contribution (GAIC). It was intended to apply from 1 July 2022 so it is expected that the Government will engage further with the property industry before plans to introduce a further Bill for this tax are considered later this year. As a leading property development law firm we will keep you informed with any further updates on this tax as we become aware.

Despite the recent ‘circuit breaker’ lock downs we have endured we are all hopeful that the Victorian economy will pick up where it left off. With the resilience and determination that Victorians have already displayed we are quietly confident these minor lockdowns will be nothing but speed bumps in the road to economic recovery. Our experienced teams are at hand to assist both seasoned and first-time developers at any point in the development lifecycle.

About Best Hooper – Victoria’s Property, Planning and Land Development Advisory Law Firm

Best Hooper are the oldest and most prominent developer focused law firm in Victoria who have served our community since 1886; through wars, recessions, depressions and pandemics. We are actively advising clients in relation to the COVID-19 outbreak on all property related matters including leasing, disputes, property transactions and planning advices and applications. We are continuously recognised as industry leaders in a variety of publications, including Doyles Guide and Best Lawyers.

If you have any questions about this article or require more information, please contact Giancarlo Romano, (03) 9691 0220 or gromano@besthooper.com.au