The measures are largely aimed at Victorian property developers and owners who, according to Treasurer Tim Pallas, have been the “big winners from the pandemic”. The property industry, which has historically been one of Victoria’s largest contributors to economic activity, must now come to terms with the latest proposed land tax and stamp duty increases, as well as a new proposed Windfall Gains Tax.
Whilst many measures are broadly in line with announcements made over the weekend, as ever, the devil is in the detail. And some of that remains to be seen.
From the 2022 land tax year, Victorians will enjoy a $50,000 increase in the land tax threshold, paying no land tax if they own land (individually or jointly) with a total taxable value of up to $300,000.
On the flipside, taxpayers with property holdings over $1.8 million will pay more. From 1 January 2022, both the general and trust surcharge rates will increase by:
- 25 percentage points for taxable landholdings exceeding $1.8 million, and
- 3 percentage points for taxable landholdings exceeding $3 million.
Other notable changes include:
- the extension of the vacant residential land tax exemption for developments for up to two land tax years, and
- the much-publicised removal of concessions for private gender-exclusive clubs from 1 January 2022 (although this proposed amendment is not included in the budget bill).
|Total taxable value of land holdings||Land tax payable|
|$300,000 to < $600,000||$375 plus 0.2% of the amount > $300,000|
|$600,000 to < $1,000,000||$975 plus 0.5% of amount > $600,000|
|$1,000,000 to < $1,800,000||$2,975 plus 0.8% of amount > $1,000,000|
|$1,800,000 to < $3,000,000||$9,375 plus 1.55% of amount > $1,800,000|
|$3,000,000 and over||$27,975 plus 2.55% of amount > $3,000,000|
For agreements entered into from 1 July 2021 a new land transfer duty bracket will be introduced, charging a premium duty rate of $110,000 plus 6.5% on dutiable values in excess of $2 million.
Previously flagged by the Treasurer, it is now clear that this premium duty rate will apply regardless of property type (unlike the premium rate in NSW for some residential land). The premium rate also applies equally to different types of dutiable transactions, including landholder acquisitions and acquisitions of economic entitlements. The calculation of dutiable value for direct property transfers and the value of relevant acquisitions (that is calculated with reference to ‘unencumbered value’) remain unchanged. The amendment simply operates to charge a higher rate of duty to transactions valued at in excess of $2 million.
The impact of these changes is likely to extend beyond urban Melbourne as purchases and acquisitions in rural and regional Victoria have seen significant price increases driven in part by post-pandemic tree or sea changers enabled by remote working.
Other notable changes include an expansion of the off-the-plan stamp duty concession and concessions for new residential property within the municipality of the Melbourne City Council, including a full exemption for property that has not been sold for a year or more after the completion of construction and a dutiable value less than $1 million. To be eligible for the duty exemption, the contract must be entered into between 21 May 2021 and 30 June 2022 inclusive.
Windfall Gains Tax
Met with vehement industry disapproval, a new Windfall Gains Tax will seek to capture a significant part of the uplift that developers and/or landowners enjoy on the rezoning of land.
From 1 July 2022, the total value of the uplift from a rezoning decision will be taxed at 50% for windfalls above $500,000. The tax will be phased in from $100,000. It is not yet clear whether the uplift will be calculated by reference to the price of the property at the time of acquisition or the market value of the property immediately before the rezoning took place. If the former, the tax payable could be significant, particularly where the owner has held the property for many years and its value has already significantly increased in value during the ownership period.
While this new measure aims to target “developers”, the Windfall Gains Tax may also attack the unwitting landowner with no history or intention of engaging in property development. Depending on the legislation ultimately passed (which has not yet been released) once income or capital gains tax is considered, landowners could be facing an effective tax rate on their gains in excess of 70%.
The Windfall Gains Tax will be payable on all rezonings across Victoria, with the exception of rezonings to and from the Urban Growth Zone within existing Growth and Infrastructure Contribution areas and to Public Land Zones. The tax will not apply to changes within zone sub‑categories.
Whether this measure will ultimately decrease property development activity, and in turn reduce housing supply and flow on to an increased cost of housing, remains to be seen. We expect the government to release the fine print of this proposed new tax later this year.
In a bid to support regional Victorian jobs and help smaller businesses, payroll tax plans outlined in the 2019-20 budget will be brought forward and take effect from 1 July 2021. From that date, the regional payroll tax rate will fall to 1.2125% and the payroll tax-free threshold will increase from $650,000 to $700,000.
From 1 January 2022, the existing payroll tax framework will also be used to implement a “Mental Health and Wellbeing Levy” as a payroll tax surcharge on businesses with national payrolls over $10 million a year. They will pay an additional:
- 5% for payrolls over $10 million, or
- 1% for payrolls over $100 million.
How ABL can help
Arnold Bloch Leibler’s taxation and property teams have significant experience in dealing with these issues. Our experience and knowledge give us a valuable insight into the needs and challenges facing developers, landowners and employers in these matters.
If you would like further details about the information contained in this article, please contact one of our team members below: