Victorian land tax – significant changes unveiled

14 minute read  06.12.2023 James Hamblin, Gary Choy, John Riley

Victoria is to prohibit land tax / WGT sharing on sales and to expand the vacant residential land tax regime.

Key takeouts

  • Proposed prohibition on apportioning land tax or an existing windfall gains tax liability between a vendor and a purchaser under a contract of sale (with effect from 1 January 2024).
  • Vacant residential land tax is to potentially apply to all Victorian residential land, and not just residential land in inner-middle Melbourne. 'Land banking' within metropolitan Melbourne will also be targeted.
  • The Bill proposes various other changes including in relation to duties, windfall gains tax and the Valuation of Land Act 1960.

Following negotiations with the cross-bench, the Victorian Government has revised the State Taxation Acts and Other Acts Amendment Bill 2023 (Bill), which passed both Houses on 30 November 2023. The Bill proposes to:

  • prohibit an apportionment of land tax or an existing windfall gains tax (WGT) liability under a contract of sale;
  • significantly expand Victoria's current 'vacant residential land tax' (VRT) regime;
  • make various other amendments, including in relation to the corporate reconstruction relief regime for duty.

Vendors prohibited to pass on land tax or existing WGT liabilities

It is common practice for parties to a contract of sale of land to make settlement adjustments that include an apportionment of land tax (if any). Further, contractual allocation of the risk of WGT is becoming increasingly common given that the WGT regime became 'live' on 1 July 2023.

The Bill proposes to amend the Sale of Land Act 1962 with effect from 1 January 2024. It will generally be an offence for a vendor to enter into a contract of sale that purports to apportion any land tax liability to a purchaser. Similarly, it will be an offence for a person to grant an option (to enter into a contract of sale of land) or to enter into a contract of sale of land that purports to apportion any existing WGT liability to a purchaser. Any prohibited clause will be taken to have no effect.

The penalty for such an offence is significant, being 60 penalty units for individuals (currently approximately $11,540) and 300 penalty units for bodies corporate (currently approximately $57,700).

The prohibition against passing on land tax and WGT liabilities is also proposed to be reflected in updates to the general conditions of sale outlined in the Property Law Act 1958.

Upon introducing the Bill to Parliament, the Treasurer stated that these are 'consumer protection measures to increase transparency on purchase costs for property purchases'. We assume that an example intended to be addressed would be where:

  • a purchaser buys a property to be their principal place of residence (i.e. land tax exempt going forward);
  • the vendor holds the property as an investment or as trading stock and therefore the property is not land tax exempt; and
  • the purchaser is adversely impacted by a land tax adjustment clause which contractually shifts a portion of the vendor's land tax liability to the purchaser.

Prohibiting land tax adjustments represents a significant departure from a decades old practice which is well understood. Further, the original version of the Bill contained no carveouts. However, following industry feedback, the Bill was amended to provide that contracts with a 'sale price' of at least a 'threshold amount' are still permitted to contain land tax adjustment clauses. The 'threshold amount' is defined to be $10,000,000 for the 2024 calendar year (and is to be indexed for following years). Importantly, care must be taken in determining the 'sale price', which is specifically defined as:

‘the price of the land that is specified in the contract, however expressed, less any discount or rebate that is specified in the contract, whether or not the discount or rebate is contingent’.

We note that any additional amounts paid by purchasers of land as part of the settlement adjustment process are generally not treated as dutiable consideration. Where such amounts are instead factored into purchase prices, this will increase the duty payable on transactions.

With regard to WGT, the proposed changes will only apply to WGT liabilities for which a notice of assessment has been served on a person at the time the relevant contract of sale or option agreement is entered into. The Government has expressly stated that the intention of this measure is for the allocation of such a liability to be reflected in the negotiated purchase price (rather than as an adjustment upon settlement).

The original version of the Bill created uncertainty given that it was unclear whether an adjustment clause in a pre 1 January 2024 contract of sale of land or option would be enforceable in the context of a settlement that occurs on or after 1 January 2024. Pleasingly, the Bill has been amended to expressly state that land tax and WGT adjustments in pre 1 January 2024 contracts of sale of land are not impacted by the new regime. However care must be taken in the context of post 31 December 2023 contracts that are entered into pursuant to pre 1 January 2024 options – it appears that land tax adjustments may be prohibited in such a scenario.

VRT – the current regime

As summarised in our previous residential land tax update, for the 2018 land tax year onward, 'residential land' that is 'vacant' in the inner and middle suburbs of Melbourne is subject to an annual tax of 1% of the property’s capital improved value.


  • the VRT is imposed in addition to standard land tax;
  • the value upon which VRT is imposed (i.e. capital improved value) can often be significantly higher than the value upon which standard land tax is imposed (being 'site value', which ignores any improvements to the land); and
  • determining whether a property is 'vacant' requires reference to the use of the land in the year that immediately precedes the relevant land tax year (e.g. 2023 for the purposes of determining whether there is a 2024 VRT liability).

Currently, only properties in the following council areas are affected: Banyule, Bayside, Boroondara, Darebin, Glen Eira, Hobsons Bay, Manningham, Maribyrnong, Melbourne, Merri-bek (formerly Moreland), Monash, Moonee Valley, Port Phillip, Stonnington, Whitehorse and Yarra.

For the purposes of the current VRT, 'residential land' is land that is capable of being used solely or primarily for 'residential purposes', but does not include commercial residential premises, residential care facilities or land used for supported residential services or retirement village services. Neither 'capable of being used', nor 'residential purposes', are statutorily defined and therefore the scope of the VRT is not always clear. While some guidance has been provided by the Victorian State Revenue Office (SRO), there may be instances where a taxpayer will need to seek advice (either from their advisor, or from the SRO in the form of a ruling) in order to determine whether the VRT will apply to their property.

A property will be considered 'vacant' for the purposes of a land tax year if it has not been 'used and occupied' in the preceding year for a period of more than 6 months (whether continuously or in aggregate) by:

  • the owner of the residential land, as the principal place of residence of the owner; or
  • the owner's permitted occupant, as the principal place of residence of the occupant; or
  • a natural person under a lease or short-term letting arrangement, provided that the arrangement is not made for the purpose of avoiding the payment of the VRT.

Land on which a residence is being constructed or renovated will, in certain circumstances, be considered 'vacant' in a tax year if, on 31 December of the preceding year, more than two years has elapsed since the construction or renovation commenced (noting that construction or renovation is deemed to commence on the date of issue of the relevant building permit).

Importantly, affected land owners are required to notify the Commissioner of State Revenue (Commissioner) of any vacant residential land owned by 15 January of the relevant land tax year (e.g. notification for the purposes of the 2024 land tax year must be made by 15 January 2024).

VRT – proposed expansion

The Bill proposes to expand the current regime in three fundamental ways, each of which the Government considers should 'help ease pressure on rents and prices and free up available housing stock' given that 'the issue of housing affordability remains acute across the whole of the state.'

The Government has also announced that the SRO will increase its investigation activities in an effort to increase compliance.

The key changes to the regime are as follows:

Removing the current geographic restrictions

The current geographic restrictions are to be removed so that VRT can cover any relevant land throughout Victoria. This change is proposed to have effect from 1 January 2025, meaning that the use (or 'vacancy') of residential land throughout the 2024 calendar year is relevant.

Extending the definition of 'residential land' to capture unimproved land

The definition of 'residential land' will be extended. From 1 January 2026, this definition is proposed to include, generally, unimproved land that meets each of the following criteria for a continuous period of at least 5 years (in the same ownership) ending on 31 December immediately prior to the relevant land tax year:

  • is located in any of the following council areas of metropolitan Melbourne: Banyule, Bayside, Boroondara, Brimbank, Cardinia, Casey, Greater Dandenong, Darebin, Frankston, Glen Eira, Hobsons Bay, Hume, Kingston, Knox, Manningham, Maribyrnong, Maroondah, Melbourne, Melton, Merri-bek (formerly Moreland), Monash, Moonee Valley, Mornington Peninsula, Nillumbik, Port Phillip, Stonnington, Whitehorse, Whittlesea, Wyndham, Yarra and Yarra Ranges;
  • is not in a 'non-residential zone' (a list of non-residential zones is proposed to be included in the Land Tax Act 2005); and
  • is 'not solely or primarily used for or under development for a non-residential use'. In this regard, 'non-residential use' is proposed to include a series of land uses as set out in the Valuation Best Practice Specifications Guidelines. Also, the concept of 'under development for a non-residential use' generally requires relevant applications or requests under the Planning and Environment Act 1987 or the Building Act 1993 to have been made.

The Government states that it is extending the regime to cover unimproved land in order 'to incentivise the development of empty blocks in metropolitan Melbourne and increase the supply of housing.' Clearly this measure is highly significant for developers or investors that hold undeveloped blocks of land in metropolitan Melbourne – depending on the zoning of the land, they could face a significant new annual tax if they do not either develop or sell within the 5 year period.

The Commissioner will have the discretion to determine that such land is not residential land if the Commissioner is satisfied that the land is intended to be solely or primarily used or developed for a non-residential use and there is an acceptable reason for the land not yet being used or developed in that way (e.g. due to delays outside of the owner's control or due to other steps being taken for non-residential use such as remediation works). In response to industry's concern around the lack of certainty, the Government proposes to make regulations which outline the factors that the Commissioner must consider when exercising this discretion. 

Increasing the VRT rate

Following negotiations with the Greens, the Government amended the Bill so that an increased VRT rate will apply in certain circumstances.

While the rate will remain at 1% of capital improved value for any unimproved land that is impacted, the tax rate will generally increase as follows when other types of 'residential land' are vacant for consecutive years:

  • Year 1: 1% of capital improved value
  • Year 2: 2% of capital improved value
  • Year 3 (and subsequent years): 3% of capital improved value

Limited exemptions and concessions are available in the context of newly constructed dwellings.

VRT – exemptions

Exemptions to the VRT under current law will generally apply equally under the proposed expanded regime. In addition to general land tax exemptions (e.g. the principal place of residence exemption), there are specific VRT exemptions in respect of:

  • holiday homes;
  • properties used as a base for the purposes of attending the owner's place of business or employment; and
  • land that was either transferred or became residential in the year preceding the relevant land tax year.

New exemptions are also proposed in the Bill for residential land that is contiguous to the owner's principal place of residence and is solely for the private benefit and enjoyment of the person who uses and occupies the principal place of residence (e.g. swimming pool or tennis court), and for land that the Commissioner is satisfied cannot be used or developed for residential purposes (e.g. due to a restrictive covenant, planning scheme or environmental action notice).

With regard to the holiday home exemption (which is limited to a maximum of one home), generally the owner (or, as a result of amendments in the Bill, a relative of the owner) must (in the year that immediately precedes the relevant land tax year):

  • use and occupy other land in Australia as their principal place of residence – this rules out owners that do not live in Australia; and
  • use and occupy the home as a holiday home for a period of at least 4 weeks (whether continuous or in aggregate). The Bill has been amended to provide that time spent by certain family members (as opposed to only time spent by the owner) counts for the purposes of this criterion. It is unclear what evidence an owner must produce in order to show that this criterion is met.

As we have previously noted, a significant limitation of the current holiday home exemption is that land held in a company or discretionary trust is not eligible. The Bill did not address this limitation, however we understand that the Government may pass legislation in 2024 to provide relief in respect of holiday homes that are already held in such structures.

Further, the Commissioner must be 'satisfied that the land was used and occupied as a holiday home' – in this regard the Commissioner must have regard to the location of the land, its distance from the owner's principal place of residence and the nature and frequency of the use of the land. It will be interesting to see the Commissioner's position where (for example) a beachside property is vacant for just over 6 months, is used for at least 4 weeks a year by the owner and rented out for 1 - 5 months. 

Amendments to the duty corporate reconstruction relief rules

Under the Duties Act 2000, corporate reconstruction relief can be obtained in respect of the duty that would otherwise be charged on transactions that are between members of the same 90% or more owned and controlled corporate group. Such relief usually results in a 90% discount to the duty that would otherwise be payable. The Bill proposes to expand the corporate reconstruction regime to cover 'sub-sales' between corporate group members.

Very broadly, the sub-sale rules in Chapter 2 of the Duties Act 2000 can in certain circumstances result in two or more assessments of duty where the transferee of land differs from the named purchaser in a contract (or grantee of an option).

The Bill seeks to extend the corporate reconstruction relief provisions to sub-sale transactions between group members. This is a welcome change and provides eligible corporate groups flexibility (albeit still with some duty cost) to nominate a substituted or additional purchaser / transferee within the relevant corporate group in a dutiable sub-sale scenario.

Separately, the Bill also seeks to make technical amendments to the corporate reconstruction relief provisions that relate to restructures that involve multiple intra-group dutiable transactions (or landholder acquisitions) within a 30 day period.

Other proposed changes

The Bill proposes a number of other changes, including:

Changes to apply from the day after Royal Assent

  • Amending the Windfall Gains Tax Act 2021 to provide a charitable land waiver where only part of land is charitable land, to clarify the meaning of 'excluded zoning' for WGT purposes, and broadening the rules applicable to an exemption available for rezoning errors.
  • Correcting an anomaly in the Duties Act 2000 between the duty calculation for acquisitions in public landholder entities and the corporate reconstruction relief rules to ensure that one lot of 10% concessional rate of duty is payable.
  • Clarifying the operation of the pensioner and concession card holder duty reduction rules in the Duties Act 2000.
  • Amending the Valuation of Land Act 1960 to include a definition of "fixtures" and require that the value of fixtures be taken into account in determining the capital improved value of land. The Local Government Act 1989 will also be amended to reflect this change. This will impact valuations for rating, fire services levy, VRT and WGT purposes.  However, amendments to the Bill have been made to mitigate the fire services levy impact that this measure would otherwise have on properties hosting wind, solar and battery generation.
  • Updating the tax rates for 'BTR special land tax' in accordance with the new rates of land tax introduced under the State Taxation Acts Amendment Act 2023. For more on the BTR land tax concession, refer to our previous BTR land concession update.

Changes to apply from 1 January 2024

New land tax calculation formulas so that the fixed COVID-19 temporary land tax surcharge is imposed once rather than multiple times for certain taxpayers assessed on a concessional single holding basis.

Please contact us if you have any questions regarding how these changes might impact you or your business.