From 1 January 2024 the Sale of Land Act 1962 (Vic) was amended to prohibit any adjustment of land tax or windfall gains tax at settlement on Victorian properties valued up to $10 million. Furthermore, it’s now an offence for a vendor to enter into a sale contract that seeks to adjust on these taxes at settlement for such properties.
The key points to note regarding adjustment of land tax on property sales are:
- Any provision in a sale contract that purports to adjust on land tax or windfall gains tax liability is of no effect; and
- If a vendor enters into a Sale Contract that contains a provision that seeks to adjust on land tax or windfall gains tax, fines of $11,539 for individuals and $57,693 for corporate entities can be imposed.
- The $10 million threshold will be indexed annually to CPI (rounded up to the nearest $100,000).
What’s Changed With the Sale of Land Act Amendments?
Prior to 2024 it was common conveyancing practice for a purchaser to pay a proportion of land tax assessed on a property at settlement by way of an adjustment to the purchase price.
The Old Way…
For example, a vendor owns an investment property for which she is liable to pay $10,000 in land tax on 1 January. The vendor pays her land tax at the beginning of the year but decides to sell the property on 30 June (half way through the year). Her conveyancer put a land tax adjustment in the contract, so the buyer is liable to pay an extra $5,000 at settlement as a reimbursement for the half of the year that the vendor has paid land tax but hasn’t owned the property.
The New Way…
The vendor picks up the entire land tax bill. It’s now an offence for a vendor to enter into a contract of sale that purports to apportion any land tax liability to a purchaser.
The Why…
The Victorian government has legislated the prohibition of the recovery of land tax as a consumer protection measure, targeting a perceived lack of transparency. The reasoning is that a land tax liability that is known prior to entry into a contract of sale of land should be directly reflected in the sale price at the time that contract of sale is entered into.
While the majority of residential conveyances are not impacted by this change (residential properties are generally exempt from land tax due to the Principal Place of Residence exemption) the changes from 1 January 2024 have implications for industrial, commercial and some residential transactions.
Given the magnitude of the potential fines and the financial impact of not adjusting on land tax for commercial or industrial properties (valued up to the threshold of $10 million) it’s vital that you’re across these issues if considering selling any Victorian property.
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