Land Tax in Victoria: Navigating the Complex Landscape

For property owners in Victoria, understanding the state’s complex tax regime can be a daunting task. Victoria imposes a range of property-related taxes on local and foreign landowners, with additional taxes specifically targeting foreign buyers. As of 1 July 2024, several changes have come into effect, impacting how property transactions are taxed across five key asset classes: Residential Development, Residential Investment, Commercial & Industrial Development, Commercial & Industrial Investment, and Primary Production.

This article provides an overview of the key taxes property owners should be aware of and how they apply to different asset classes.

Transfer Duty

Transfer duty, also known as stamp duty, applies to transactions that result in a change in the ownership of Victorian land. Whether you’re a local or a foreign buyer, the duty rate is 6.5% on the purchase price of the land.

• Residential Development: 6.5% duty applies to all residential land purchases.
• Residential Investment: Investors in residential land are subject to the same 6.5% rate.
• Commercial & Industrial Development: A 50% duty reduction is available for land located in regional Victoria used for commercial, industrial, or extractive purposes.
• Primary Production: Similar to residential and commercial land, a 6.5% duty applies to primary production land purchases.

Foreign Purchaser Additional Duty (FPAD)

Foreign purchasers are subject to an additional duty when buying residential property in Victoria. Foreign persons include non-Australian citizens, foreign-controlled companies, and trusts with foreign interests.

• Residential Development & Investment: An 8% additional duty is imposed on foreign buyers, though exemptions may apply if the foreign entity contributes to housing stock under the FPAD Treasurer Guidelines.
• Commercial & Industrial Development & Investment: FPAD does not apply to commercial, industrial, or primary production land.

Land Tax

Land tax is an annual tax levied on all land owned in Victoria as of 31 December of the preceding year. The rates range up to 2.65%, depending on the total taxable value of the land.

• Residential Development & Investment: Owners of residential land are subject to land tax, but Build-to-Rent (BTR) developments enjoy a 50% reduction for up to 30 years if they meet eligibility criteria.
• Commercial & Industrial Development & Investment: Commercial and industrial land attracts the same 2.65% land tax without any specific concessions.
• Primary Production: Land used for primary production may be exempt under the Primary Production Exemption (PPE).

Absentee Owner Surcharge (AOS)

AOS is an additional surcharge of up to 4% for land owned by absentee owners, including foreign investors.

• Residential Development & Investment: The surcharge applies unless exemptions are obtained under the AOS Treasurer Guidelines, particularly for BTR projects contributing to Victoria’s housing stock.
• Commercial & Industrial Development & Investment: Commercial and industrial land may also be subject to the AOS unless exemptions are granted.

Commercial and Industrial Property Tax (CIPT)

Effective from 1 July 2024, CIPT applies to commercial and industrial land transitioning out of Victoria’s transfer duty regime. This 1% annual tax is imposed on the unimproved land value (ULV) after a 10-year transition period.

• Commercial & Industrial Development & Investment: CIPT will apply to all eligible commercial and industrial properties after 10 years, with the option to pay the transfer duty in instalments during the transition period.

Vacant Residential Land Tax (VRLT)

From 1 January 2025, VRLT will apply to all residential properties across Victoria that have remained vacant for more than six months in the preceding calendar year. The tax rate is 1% of the capital improved value (CIV).

• Residential Development & Investment: MPC and BTR projects are exempt from VRLT during the development phase but must lease or sell residential units within two years of completion to avoid the tax.

Growth Areas Infrastructure Contribution (GAIC)

GAIC is a one-off contribution imposed on land within Melbourne’s Urban Growth Boundary (UGB) when it is sold, subdivided, or developed. The rate ranges from $110,950 to $131,160 per hectare, depending on the location and size of the land.

• Residential & Commercial Development: GAIC applies equally to residential and commercial developments, with deferred payment options available for up to 70% of the contribution.

Conclusion

Victoria’s property tax regime is multi-faceted, with numerous taxes and surcharges applicable depending on the type of property and ownership structure. Property owners and investors, particularly foreign buyers, need to stay informed about the current tax laws to effectively manage their property portfolios and optimize tax outcomes.

For expert advice on property taxation in Victoria, contact BOA & Co. Chartered Accountants at 1300 952 286 or email us at [email protected]. Our team is here to help you navigate the complexities of property-related taxes and ensure compliance with the latest regulations.