Apportionment of Land Tax Prohibited: A reason not to sell in January -

Apportionment of Land Tax Prohibited: A reason not to sell in January

Author: Georgia Stark

In Victoria, it has been common practice for contracts of sale of land to transfer part of the vendor’s land tax liability to the purchaser upon settlement (i.e. land tax apportionment). In recent years, land tax liabilities have increased, and therefore, the amount of land tax apportioned to purchasers has increased, leading to purchaser complaints to government.

In response, the Victorian Government’s State Taxation Acts and Other Acts Amendment Bill 2023 passed through both Houses of Parliament on 30 November 2023. The Bill, which will come into effect on 1 January 2024, will prohibit the apportionment of land tax between the vendor and purchaser under a contract of sale of land. [This prohibition will also apply to the apportionment of windfall gains tax liability which is less common]

Land tax is assessed for the whole year on any land owned by a registered proprietor at midnight on 31 December each year. If the land is owned by a trustee of a trust, an additional surcharge will also apply.

The changes to the Sale of Land Act 1962 (Vic) will render it an offence for vendors to enter into a contract of sale or grant an option to enter into a contract of sale which purports to apportion any land tax liability to a purchaser. Significant penalties apply to these offences; 60 penalty units (currently $11,538.60) for individuals and 300 penalty units (currently $57,693.00) for bodies corporate.

Notably, this prohibition does not apply to contracts whose sale prices reach the ‘threshold amount’ of $10 million for the 2024 calendar year. Furthermore, any land tax adjustments within contracts for sale of land dated before 1 January 2024 remain unaffected by the new regime.

If you are selling property after 1 January 2024, you may want to complete your sale near the end of the year so that you don’ transfer it to a purchaser and pay a full year’s land tax for their benefit!

If you have questions about selling commercial property, please contact John Wardlaw from Lewis Holdway on (03) 9623 1033.