An overview of the Property Taxes within the State of Victoria

As a property professional, I find it challenging to stay updated on the property taxes impacting all participants in the State of Victoria. I suspect that some of you may not even be aware of certain taxes.

So, lets recap and provide a brief overview of the current taxes of which pertain to both local and foreign landowners.

Transfer Duty

In simple terms, if you buy or acquire a property, you pay land transfer duty, commonly known as stamp duty.

As reported by the State Revenue Office, about 200,000 properties change hands in Victoria each year. Most often they are bought or sold at auctions and private sales, but can also be gifted or acquired through a company or trust. Whichever way you obtain your property, you must pay land transfer duty on the transfer of the land from one individual to another. The amount of duty depends on the value of your property, how you use it, if you are a foreign purchaser and if you are eligible for any exemptions or concessions.

Commercial and Industrial Property Tax (CIPT)

Commercial and industrial property is moving from land transfer duty (also known as stamp duty) and landholder duty to an annual property tax known as the Commercial and Industrial Property Tax (CIPT) reform.

The CIPT reform is effective from 1 July 2024.

A purchaser of commercial and industrial property on or after 1 July 2024 can either pay conventional transfer duty of 6.5% upfront (at settlement), or pay fixed instalments of that same liability over a 10 year period.

After the 10 years, CIPT will apply as an annual 1% tax (being an additional land tax), and the land will not attract duty again upon subsequent transfer provided it remains commercial and industrial in nature.

Land Tax

Land tax is an annual tax based on the total taxable value of all the land you own in Victoria, excluding exempt land such as your home (principal place of residence).

Land tax is calculated using the Site Values (determined by the Valuer-General Victoria) of all taxable land you owned as at midnight on 31 December of the year preceding the year of assessment. 

You may have to pay land tax if you own, either individually or jointly with others:

• investment properties, including residential rental properties
• commercial properties such as retail shops, office premises and factories
• holiday homes
• vacant land

Vacant Residential Land Tax (VRLT)

Vacant Residential Land Tax (VRLT) may apply to residential land that is vacant for more than six months in the preceding calendar year.

Residential land includes:

• land with a home on it
• land with a home which is being renovated or where a former home has been demolished and a new home is being constructed
• land with a home on it that has been uninhabitable for 2 years or more.

Residential land does not include land without a home on it (sometimes called unimproved land), commercial residential premises, residential care facilities, supported residential services or retirement villages.

From 1 January 2025, VRLT will apply to residential land across all of Victoria if the land is vacant for more than 6 months in the preceding calendar year. Prior to 1 January 2025, it applied only to vacant residential land in inner and middle Melbourne. 

This means that if you own residential land in Victoria that is vacant for more than 6 months in 2024, you may be liable for VRLT in 2025. 

Metropolitan Planning Levy (MPL)

You have to pay the levy if you want to apply for a planning permit to develop land in metropolitan Melbourne where the estimated cost of the development is more than the levy threshold.

From 1 July 2024, the Metropolitan Planning Levy threshold is $1,271,000. The threshold is adjusted by the Consumer Price Index (CPI) on 1 July each year.

Growth Areas Infrastructure Contribution (GAIC)

The Growth Areas Infrastructure Contribution (GAIC) was established to help provide infrastructure in Melbourne’s expanding fringe suburbs.

It is a one-off contribution, payable on certain events, usually associated with urban property developments, such as buying, subdividing, and applying for a building permit on large blocks of land.

Generally, the GAIC does not apply to events involving land under 0.41 hectares (4,100 square metres).

Windfall Gains Tax (WGT)

From 1 July 2023, a Windfall Gains Tax applies to all land rezoned by the same planning scheme amendment resulting in a value uplift to the land of more than $100,000.

In determining the value uplift, all land owned by the person or group and subject to that rezoning is taken into account.

Foreign Purchaser Additional Duty (FPAD)

If you are a foreign purchaser and you acquire residential property, as well as land transfer duty you may have to pay Foreign Purchaser Additional Duty (additional duty) on the share of the property you acquired. 

Residential property is:

• Land capable of being used solely or primarily for residential purposes and that may be lawfully used in that way.
• Land which includes a building, or part of a building, that a person intends to refurbish or extend so the land is capable of being used solely or primarily for residential purposes and that may be lawfully used in that way.
• Land:
  • On which a person intends to construct a building so the land is capable of being used solely or primarily for residential purposes and may be lawfully used in that way.
  • In respect of which a person has undertaken or intends to undertake land development for the purposes of:
  • constructing a building so the land is capable of being used solely or primarily for residential purposes and may be lawfully used in that way, or
  • enabling another person to construct a building so the land is capable of being used solely or primarily for residential purposes and may be lawfully used in that way.

You are a foreign purchaser if you:

• are not an Australia citizen
• are not a New Zealand citizen with a Special Category Visa (Subclass 444). To hold this visa, the New Zealand citizen must be physically present in Australia, or
• do not hold an Australian permanent residence visa.

Absentee Owner Surcharge (AOS)

From the 2024 land tax year, an Absentee Owner Surcharge of 4% applies to Victorian land owned by an absentee owner. The surcharge was 2% for the 2020 to 2023 land tax years, 1.5% for the 2017 to 2019 land tax years, and 0.5% for the 2016 land tax year.

The Absentee Owner Surcharge is an additional amount that applies over the land tax you pay at general and trust surcharge rates.

What is an absentee owner?

An absentee owner is an absentee person that owns land in Victoria, and can be:

• an absentee individual. An ‘absentee individual’ means a non-Australian citizen or non-permanent resident that does not ordinarily reside in Australia.
• an absentee corporation. An ‘absentee corporation’ means a company incorporated outside Australia or incorporated in Australia but which an absentee individual controls.
• a trustee of an absentee trust. An “absentee trust’ means a discretionary, fixed or unit trust with at least one absentee person beneficiary.

Source: State Revenue Office (www.sro.vic.gov.au).

The above is not meant to disenchant your property making decisions but rather to provide an overview of the current state of play and to highlight the associated costs of doing business.

In our opinion, you can’t solve a problem just by raising taxes. Sometimes, simply increasing taxes won’t fix the underlying issues we are all facing.

To discuss any related property matter herein or other issues, please contact Jim Derzekos, Director.

jd@fvg.com.au 0412 361 367

FirstValuation Group
Suite 110/181, St Kilda Road, St Kilda, Victoria, 3182
valuations@fvg.com.au