LAND PURCHASERS TO BENEFIT FROM LAND TAX AND WINDFALL GAINS TAX EXCLUSIONS ON SALE

Legislation in Victoria has now passed the Legislative Assembly to prohibit a vendor from passing on an existing land tax or windfall gains tax liability to a purchaser on sale of land.  Subject to the legislation passing unamended in the Legislative Council and receiving Royal Assent, the changes will take effect 1 January 2024.

Land Tax

It has been the practice for many years that an adjustment is made between the parties at settlement for any land tax applicable to the property sold.  A purchaser would be required to pay a proportion, from settlement, of any land tax liability for the current year.  This has been the case even where the purchaser would be entitled to an exemption for land tax once ownership of the property passed to them.

Windfall Gains Tax

The introduction in July 2023 of windfall gains tax payable by some land owners on the uplift in value of land after rezoning has resulted in parties seeking contractual conditions to pass such windfall gains tax on to purchasers.  These conditions often pass on the liability to the purchaser where the liability has arisen either before or after the contract date.

Contracts and options under the new legislation

The changes to the Sale of Land Act 1962 (and Property Law Act 1958 in relation to general law land) will prohibit a vendor from including a condition in a contract of sale which requires the purchaser to pay any land tax liability that arises before the settlement date.  If such condition is included, it will have no effect (including, apparently, existing contracts on foot as at 1 January 2024).

The legislation changes will also prohibit a vendor including a condition in a contract of sale or option agreement which requires the purchaser to pay an amount for or towards an existing windfall gains tax liability under a notice of assessment issued on or before the date of the contract.  Any such condition will have no effect (including for existing contracts on foot as at 1 January 2024). 

The changes to the Property Law Act specify that an ‘existing’ liability for windfall gains tax liability means for which the vendor is liable under a notice of assessment issued on or before the date of the contract in respect of a liability arising under the Windfall Gains Tax Act 2021.  However, the change to the Sale of Land Act does not include this distinction.  It does not define whether an ‘existing’ means a liability existing before the contract date or before settlement.  Therefore, it is not clear, where a rezoning which occurs between the contract date and settlement, whether there is a prohibition on the vendor requiring the purchaser to pay or contribute to a windfall gains tax liability.  If there is any possibility of rezoning of land to be sold after the contract and before settlement, purchasers should obtain advice before signing any documents. 

Vendors commit an offence if they contravene the new requirements, being 60 penalty units for individuals (currently $11,538.60) and 300 penalty units for bodies corporate (currently $57,693).

Ensuring payout of vendor existing liabilities

Unpaid land tax may become payable by purchasers if not paid out by vendors at settlement and a land tax certificate is not obtained from the State Revenue Office prior by the purchaser to settlement.  Purchasers should still be vigilant to ensure that any existing land tax of a vendor is paid out at settlement.  It is not uncommon, particularly for off the plan contracts, for a condition which prevents a purchaser from requiring payment at settlement.  Our conveyancers can assist purchasers in relation to this.

Seek advice before signing

We can provide advice to Purchasers before signing any heads of agreement, contract of sale or option agreements to purchase property to ensure the vendor’s compliance with the new requirements (if they are passed) or to ensure land tax and windfall gains tax liabilities are appropriately dealt with.

Vendors will also need to take into account any land tax or windfall gains tax liability when negotiating a sale of land.  We can advise and assist vendors with compliance of their obligations and implications for the sale of their land.

For further information please contact:

Vittoria De Stefano
Principal
M 0407 091 301 | T 03 5226 8520
E vdestefano@ha.legal

Emma Buchanan
Senior Associate
M 0498 563 248 | T 03 5226 8529
E ebuchanan@ha.legal

Jamie McCallum
Senior Associate
M  0408 270 480 | T  03 5226 8563
E jmccallum@ha.legal

Madeleine Luppino
Associate
T  03 5226 8564
E  mluppino@ha.legal