Property developers in Victoria will face significant changes in land tax regulations for the 2023/24 financial year, which could impact their operations and financial strategies. The Victorian government has recently introduced new land tax reforms to generate additional revenue and improve property market fairness. As a property developer, understanding these changes is crucial for managing costs and planning future projects effectively.
Let’s Delve into how Victoria’s New Land Tax Changes will affect Property Developers
1. Temporary Land Tax Surcharge: The Land Tax Act 2005 has been amended to introduce a temporary land tax surcharge, applicable from the 2024 land tax year and expire after 10 years. Properties exempt from land tax will also be exempt from the surcharge. The surcharge will be applied based on the taxable landholdings:
· For taxable landholdings between $50,000 and $100,000, a $500 flat surcharge will apply.
· For taxable landholdings between $100,000 and $300,000 (or $250,000 for trusts), a $975 flat surcharge will apply.
· For taxable landholdings over $300,000 (or $250,000 for trusts), a $975 flat surcharge will apply, plus an increased land tax rate by 0.10 percentage points.
2. Absentee Owner Surcharge (AOS): The Land Tax Act 2005 has been amended to increase the AOS rate from 2% to 4% and reduce the tax-free threshold for non-trust absentee owners from $300,000 to $50,000, starting from the 2024 land tax year. This change will affect property developers and absentee owners of Victoria's taxable land, resulting in higher land tax obligations.
3. New Land Tax Exemptions: The updated reforms also introduce new land tax exemptions for specific circumstances:
- Land owned by an immediate family member of a qualifying person with a disability will be exempt from land tax if the property is used and occupied as the qualifying person's principal place of residence for no consideration.
- Land protected by a conservation covenant with Trust for Nature (Victoria) will be exempt from land tax starting from the 2024 land tax year.
- The Commissioner now has the discretion to extend the land tax exemption for the construction or renovation of a principal place of residence for up to 2 additional years in cases where additional time is required due to builder insolvency.
What do these changes mean for you as a Property Developer?
Land tax will be higher for most properties, so it is more expensive to hold. This should provide an incentive to get in and develop as soon as possible. This is particularly true for any developers who are residing outside Australia with their surcharge being doubled. The increased costs should be factored into any feasibility analyses done.
It is also prudent to be aware of the exemptions to land tax, the main one being the principal place of residence exemption. This opens up strategies such as joint ventures with existing land owners or living in a property throughout the planning process to save on land tax in the immediate timeframe.
Being across your land tax obligations will help you be more accurate in your calculations and ensure accurate figures. If you are eligible for exemptions, this will help with your profitability.