How will the 2021-2022 Victorian Budget’s property tax measures affect you? May 26, 2021

The Victorian property industry fears that the latest Budget’s focus on property tax will cause significant financial pain

Following its release in May 2021, the Victorian Government’s 2021/22 Budget has received widespread criticism for its new premium stamp duty rate, land tax hikes and windfall gains tax.

After a year of significant tax concessions and stimulus packages to support Victorians through the COVID-19 pandemic, the Budget adopts a clear revenue-raising focus. Over $2 billion is expected to be raised by a range of property tax/duty measures, which will hit landlords, developers and high-end property buyers.

How do the Victorian Budget’s property tax measures deal with stamp duty?

The Victorian Budget’s property tax measures will impose a new stamp duty ‘premium.’ It will apply to all property transactions with a value above $2 million. This means that, instead of the current 5.5% flat rate, a taxpayer entering into a contract to acquire land on or after 1 July 2021 will need to pay:

• $110,000.00 (this means a 5.5% duty on the first $2 million of dutiable value); and
• 5% of the dutiable value over $2 million

This measure applies to all types of land, including commercial and industrial land. The property industry has expressed concern that this measure will place a handbrake on investment and development activity.

Further, this measure appears to be contrary to recent hints that Victoria may phase out stamp duty and replace it with a broader land tax.

How do the Victorian Budget’s property tax measures deal with land tax?

Commencing from the 2022 land tax year, land tax will rise by:

• 25% for taxable land holdings exceeding $1.8 million; and
• 30% for taxable landholdings over $3 million

While Treasurer Tim Pallas has indicated that this increase will only affect a fraction of Victorians, there are potential knock-on effects that are important to consider, including:

• Landlords shifting the burden of land tax increases to their tenants for non-retail leases; and
• Developers passing on increased land tax costs in the form of increased prices for developed lots

How do the Victorian Budget’s property tax measures deal with windfall gains?

A new windfall gains tax will apply to profits made by landowners (mostly developers) as a result of a planning decision to rezone land. The total value uplift from a rezoning decision will be taxed at 50% for windfalls above $500,000, with the tax phasing in from $100,000. This new measure is set to apply from 1 July 2022.

The property industry has already voiced concerns that the windfall gains tax will discourage growth in the regions and harm housing affordability.

Many questions about this tax remain unanswered, including questions relating to transitional provisions, interactions with capital gains tax, and circumstances in which payment can be deferred. It is expected that further detail on the windfall gains tax will be revealed in a separate Bill being introduced into Parliament.

Summing up

The Victorian Budget’s property tax measures have financial implications for many investors (and potential investors) in commercial or residential property. One of the biggest concerns is the impact on progress through investment and development and who will bear the financial burden.

Contact us to learn more about the Victorian Government’s property tax measures.

This article was written by Principal Josh Kaplan and Lawyer Evelyn Zeglinas.

DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can receive from marshalls+dent+wilmoth and other relevant experts.