With little fanfare, the Victorian Government has recently passed a significant amendment to the Land Tax Act 2005 (Vic). Special land tax is gone!
Among other things, the State Taxation Acts Amendment Act 2020 (Vic) abolished special land tax in Victoria with effect from 16 December 2020. Many in the property industry and particularly not for profit landowners will breathe a sigh of relief that this land tax trap will no longer exist.
Special land tax is a one-off tax charged when certain types of land that are exempt from land tax cease to be exempt land. The amount of special land tax is significant – 5% of the land’s taxable value. Liability arises at the date when the land ceased to be exempt.
The special land tax liability arose when a certain exemption grounds ceased to apply, including:
- sporting, recreational or cultural land;
- rooming houses;
- residential care facilities or supported residential services;
- residential services for people with disabilities;
- caravan parks and
- land owned by a public statutory authority.
In the parliamentary documents for the amending Act, we are reminded that special land tax was introduced in 1973 to discourage land speculators from claiming spurious land tax exemptions while waiting for land to increase in value. The Government now considers that changes to its tax and planning framework mean special land tax is no longer fit for its original purpose. Arguably, the charging of special land tax discourages redevelopment and in reality, it often fell inequitably on not for profit entities that operated residential care facilities, disability services or cultural activities rather than speculators as originally intended.
As a result of the amendments to the Land Tax Act, from 16 December 2020 special land tax will no longer be assessed when an exempt use ceases to apply to land. Importantly, special land tax will still be applicable when exempt land ceased to be exempt before 16 December 2020.
The removal of special land tax is positive news for some ‘for purpose’ landowners. No longer will a hefty special land tax charge be a barrier to the consideration of the best use of resources or progressing new strategic directions. For other landowners, special land tax was a potential barrier to redevelopment of land, as most of the exemption categories captured by the special land tax net were large sites with the potential for meaningful infill development. Perhaps this may result in more affordable housing in established areas. Good news for aspiring homeowners too!
Of course, it is rare for the Government to provide a gift without strings attached. We expect these consequences will come in the form of increased audit activity to identify general land tax noncompliance.
We encourage all landowners to review their most recent land tax assessments and ensure that any anomalies are clarified and if necessary, reported to the State Revenue Office. Self-reporting is generally viewed more favourably than a noncompliance identified in an audit, which may result in significant interest and penalties.
How we can help
If you require assistance in reviewing your land tax status or addressing any potential noncompliance, get in touch with our experienced team. We can advise you and if required, make submissions on your behalf to the State Revenue Office. For more information, please do not hesitate to contact us.