ByLawyers News and Updates

Adjustments and land tax in 2024

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By Russell Cocks, Solicitor

Adjustments

As of 1 January 2024, practitioners need to ensure that the form of contract that they are using for the sale of real estate complies with amendments to the Sale of Land Act 1962, being new s 10G and s 10H. These amendments apply to contracts for a purchase price of LESS THAN $10,000,000 indexed: s 10I.

It is the responsibility of practitioners to ensure that contracts that may be signed after 1 January 2024 are compliant. These changes also need to catch up with any contract that was prepared before 1 January 2024 and may be awaiting execution, especially those provided to estate agents in anticipation of a sale, but which did not occur before 1 January 2024.

Section 10G provides that a condition in a contract is of no effect to the extent that the provision purports to require the purchaser to contribute to the vendor’s Land Tax. Such conditions are virtually universal, so this change will affect 99.9% of contracts for the sale of land. The section only applies to contracts that come into force after 1 January 2024.

Including a condition in breach of the Act in a contract AFTER 1 January 2024 exposes the vendor to a substantial financial penalty.

Land Tax is not a factor in the great bulk of conveyancing transactions that relate to the sale of a Principal Place of Residence or, to a lesser extent, exempt farming properties, as these categories of property do not attract Land Tax, so no adjustment is required. However, it will still be an offence to include reference to Land Tax in the adjustment condition, so it is important to ensure that ALL contracts are reviewed to ensure that Land Tax is REMOVED from the outgoings to be adjusted at settlement.

The change will have the greatest effect in relation to the sale of commercial/industrial properties and where a vendor owns multiple properties. While adjustments may be conducted in the “normal” way if the contract was signed before 1 January 2024, no adjustment can be made in respect of Land Tax for any contract that came into existence after 1 January 2024.

An area where this change will be significant, and perhaps not before time, is where a residential land subdivider includes adjustment conditions that pass on what can be substantial and generally unexpected Land Tax liabilities. In extreme examples, subdividers include conditions that pass on the vendor’s Land Tax, often at the subdivider’s high rate, from the date of the contract rather than the date of settlement. This results in “Mum & Dad” purchasers unwittingly becoming responsible for many thousands of dollars of the subdivider’s Land Tax. It may be this extreme example of consumer abuse that has prompted this “big stick” response of prohibiting Land Tax adjustment at all.

In a similar vein, s 10H prohibits contractual conditions (including in options) that seek to adjust the vendor’s existing Windfall Gains Tax (WGT) liability. WGT commenced on 1 July 2023 (see the Legal Practitioners Liability Committee Windfall gains tax hub for details) so it is not likely that this amendment will affect any or many contracts. WGT MIGHT potentially apply to any land (except GAIC land) that is rezoned with a consequential gain in value. The amendment only prohibits adjusting WGT in respect of an EXISTING WGT liability (assessment). It does not prohibit an adjustment condition in a contract that allows adjustment of a future WGT assessment which arises during the course of the contract. The parties may agree that this will be borne by the vendor, who will receive the assessment, maybe the responsibility of the purchaser at settlement or may be apportioned between the parties according to some agreed formula.

A vendor with an EXISTING WGT liability must take that liability into account when calculating the price for which the vendor is prepared to sell the land. That EXISTING WGT liability CANNOT be passed on, in whole or in part, to the purchaser and will become payable by the vendor in full at settlement.

Land tax

In addition to changing how Land Tax can be adjusted on sale, amendments to the Land Tax Act 2005 change existing Land Tax obligations and create new obligations.

Section 34A presently imposes a vacant residential land tax on taxable land capable of being used for residential purposes within certain municipal districts of Melbourne. That tax is to be extended from 1 January 2025 to apply to all land in Victoria which is taxable vacant residential land. This tax applies to homes, not vacant land, which have been vacant for more than six months in the preceding calendar year, commencing 2024, and attracts land tax at the rate of:

  • 1% Capital Improved Value (CIV) in first year;
  • 2% CIV in second year; and
  • 3% CIV in third year.

Section 34B(2)(b) introduces a new tax from 1 January 2026 on vacant land suitable for residential use within metropolitan Melbourne if the land has been vacant for five years in one ownership. This tax applies to unimproved land.

State taxation – VIC

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Amendments to various state taxation provisions affecting conveyancing transactions came into effect on 1 January 2024.

Summary of amendments

Amendments introduced by the State Taxation Acts Amendment Act 2023 and the State Taxation Acts and Other Acts Amendment Act 2023 include:

  • A prohibition on apportioning land tax between a vendor and a purchaser at settlement under a contract of sale of land when the sale price is under the prescribed threshold, currently $10M.
  • A prohibition on apportioning an existing windfall gains tax liability between a vendor and a purchaser under a contract of sale of land or an option agreement.
  • The introduction of a temporary land tax surcharge which will expire after 10 years in addition to existing land tax rates – part of the government’s debt levy measures to recover COVID related spending.
  • An increase of the absentee owner surcharge rate from 2% to 4%, and a reduction of the tax‑free threshold from $300,000 to $50,000 for non-trust absentee owners, with the minimum threshold for trusts unchanged.
  • An extension of the land tax exemption for owners affected by builder insolvencies for an additional two years for a principal residence undergoing construction or renovation.

Land tax and windfall gains tax

Land tax

A new s 10G of the Sale of Land Act 1962 makes it an offence for a vendor to enter into a contract of sale of land that purports to apportion land tax between a vendor and a purchaser when the sale price is under the prescribed threshold. The threshold, set out in s 10I of the Act, is $10,000,000 for 2024, and will be adjusted annually for CPI. Any such clause will be taken to have no effect.

Windfall gains tax

A new s 10H of the Sale of Land Act 1962 makes it an offence for a vendor to enter into a contract of sale of land or an option agreement that apportions an existing windfall gains tax liability to a purchaser. Any such clause will be taken to have no effect.

Adjustment of the purchase price

The allocation of land tax and windfall gains tax liabilities may be reflected in the negotiated purchase price, but cannot be an adjustment on settlement.

Pre-1 January 2024 contracts and options

Sections 10G and 10H do not apply to a contract of sale entered into before 1 January 2024. Further, s 10H does not apply to an option to enter into a contract of sale granted before 1 January 2024, or a contract of sale entered into on or after 1 January 2024 under the exercise of an option that was granted before 1 January 2024.

By Lawyers updates

The commentaries in the Sale of Real Property and Purchase of Real Property guides in the Conveyancing (VIC) publication have been updated to account for these state taxation amendments. The land tax amendments are reflected in clause 15 of the By Lawyers Contract of Sale of Land, and a note concerning the land tax and windfall gains tax offences has been added to the Retainer instructions – Sale of real property.

Stamp duty – SA

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Amendments to stamp duty and land tax concessions were introduced in the most recent state budget and apply in the current financial year.

Summary of changes

  • Introduction of stamp duty relief for eligible first home buyers who enter into a contract to purchase a new home or vacant land to build a new home on or after 15 June 2023.
  • Increase in the property value cap for the first home owner grant in relation to eligible transactions entered into on or after 15 June 2023 from $575,000 to $650,000.
  • Introduction of a land tax reduction for eligible build-to-rent projects where construction commences on or after 1 July 2023.

Stamp duty relief for first home buyers

Stamp duty relief is now available to eligible first home buyers who entered into a contract to purchase a new home or vacant land to build a new home on or after 15 June 2023.

This relief is not available on the purchase of an established home, including a planned knock-down and rebuild.

New home

Full stamp duty relief applies on the purchase of an eligible new home valued up to $650,000, with reduced relief for properties valued up to $700,000.

Vacant land on which a new home will be built

For the purchase of vacant land on which a new home will be built, full stamp duty relief applies for land valued at up to $400,000, with reduced relief for land valued up to $450,000.

Eligibility requirements

The eligibility criteria are based the first home owner grant. This is set out in detail in the commentary in the By Lawyers Purchase of Real Property guide.

First Home Owner Grant threshold increase

The property value cap was increased for the first home owner grant in relation to eligible transactions entered into on or after 15 June 2023 from $575,000 to $650,000.

Land tax reduction for build-to-rent projects

To promote new housing opportunities, a land tax reduction is available for eligible build-to-rent projects when construction commences on or after 1 July 2023. This is applied as a 50% reduction in the land value of relevant parcels of land being used for an eligible build-to-rent project.

The land tax reduction is available from the 2023-24 financial year up to, and including, the 2039-40 financial year.

By Lawyers publication updates

The By Lawyers Conveyancing (SA) publication, which includes the Sale of Real Property guide and the Purchase of Real Property guide, has been updated to reflect these changes, including the commentaries, to-do lists, retainer instructions, and initial letters.

Conveyancing cases – VIC

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New conveyancing cases have been added to By Lawyers reference manual 1001 Conveyancing Answers (VIC) as part of a review by our author Russell Cocks. The publication has been generally updated for recent developments in the law and practice.

New cases on various aspects of the conveyancing process have been added, including:

Practical commentary has also been added about setting up and running electronic workspaces in the electronic lodgement platforms.

1001 Conveyancing Answers (VIC) is available in the Reference Materials folder on the matter plan in all Victorian By Lawyers conveyancing and property guides. It contains many conveyancing cases with summaries and hyperlinks. It assists property lawyers and conveyancers to understand more complex issues in the conveyancing process and solve problems for their clients.

 

Sunset clause – QLD

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Amendments to the Land Sales Act 1984 affecting sunset clauses in off the plan contracts commenced on 22 November 2023. The new provisions provide that there is no automatic termination under a sunset clause.

The changes under Part 4 of the Body Corporate and Community Management and Other Legislation Amendment Act 2023 are intended to prevent developers using delaying tactics to enable them to terminate a contract under a sunset clause and sell the property for a higher price.

A new Division 4A of the Land Sales Act 1984 applies to all off the plan contracts that include a sunset clause entered into on or after 22 November 2023, and retrospectively to existing unsettled contracts.

When a seller can terminate under a sunset clause

Section 19D now provides that a seller can only terminate a contract for a relevant event not occurring by the sunset date if:

  • the seller has provided all buyers with a sunset clause notice and has their written consent to the proposed termination; or
  • the seller obtains an order permitting the termination from the Supreme Court; or
  • a regulation otherwise permits the seller to terminate the contract.

A relevant event is:

    • registration of the plan of subdivision for the proposed lot;
    • creation of a separate indefeasible title for the proposed lot;
    • settlement of the contract;
    • another event prescribed by regulation as a relevant event.

The sunset date means:

    • for a relevant event other than settlement, the day it must happen under the contract, including an extension provided for in the contract; or
    • the settlement day, including an extension provided for in the contract.

Section 19C provides that a sunset clause cannot automatically terminate an off the plan contract. If a sunset clause purports to automatically terminate the contract, it is taken to mean the contract can be terminated under the new provisions, on or after the sunset date.

Notice of termination under a sunset clause

A seller proposing to terminate a contract under s 19D must serve notice in writing on each buyer at least 28 days before the sunset date containing certain information including their reasons.

The buyer must consider the information in the notice and act reasonably in the circumstances. They must respond to the notice by the day before the sunset date. Failure to respond does not represent consent to the termination.

Supreme Court order for termination under a sunset clause

The Supreme Court can make an order permitting the seller to terminate the contract under a sunset clause if the seller satisfies the court it is just and equitable in the circumstances. Section 19F(3) sets out the factors the court can consider in making this determination.

The seller will also be liable to pay the buyer’s costs of the proceedings unless the seller satisfies the court that the buyer unreasonably withheld consent to the termination.

Publication updates

The By Lawyers Sale and Purchase of Real Property guides have been updated accordingly. Precedents for a termination notice and consent to termination precedent have been added to the respective matter plans, with letters enclosing them.

Duplicate certificates of title abolished – WA

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Duplicate certificates of title have no effect in Western Australia from 7 August 2023. Duplicate titles or duplicate certificates were also known as paper titles or title deeds.

Under the Transfer of Land Amendment Act 2022, duplicate or paper certificates of title were rendered invalid. They ceased to enjoy the status of a legal document from 7 August 2023. Paper certificates of title will no longer be issued or created by Landgate, nor required to register a dealing.

Verification of identity and establishing a right to deal with an interest in land are now the means of proving ownership. They replace possession or control of a paper certificate of title.

Full electronic conveyancing in Western Australia is one step closer thanks to these changes modernising land transactions.

If you do hold a paper or duplicate certificate of title, you do not need to return it to Landgate or destroy it. It will automatically be considered invalid from 7 August 2023. You can keep your duplicate certificate of title for display purposes.

One can obtain a record of your certificate of title through Landgate’s website through a title search. It will show you the most up to date information and any interests registered over the title.

The By Lawyers Western Australia Purchase of Real Property, Sale of Real Property, Lease, Mortgage, Probate, and Letters of Administration publications have been updated accordingly.

 

 

 

1 July updates – All states

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1 July updates are always a big focus for By Lawyers. Many Commonwealth and state legislative instruments provide for the scheduled indexing of relevant monetary amounts and adjustments – usually increases – in government fees and charges. These regular updates occur at the start of every financial year impacting many different areas of law, and therefore numerous By Lawyers publications.

These updates include court filing fees, lodgment fees for property dealings, land tax thresholds, minimum weekly compensation amounts for Workers Compensation, and penalty units for fines for various criminal offences and civil penalty provisions.

By Lawyers always monitor and apply these changes for our subscribers. Each year we ensure our publications are amended where necessary to reflect 1 July updates.

We also monitor and update for similar legislative indexing and increases which occur regularly at other times of the year. These include 1 January changes and other specific dates for various areas of law as prescribed by some statutes.

The 1 July updates have been applied this year, or are in the process of being applied as they get released, to the following By Lawyers publications:

Quite separately, there is also usually a raft of new and amending legislation from both Commonwealth and state parliaments which is set to commence on 1 July. This year is no different in that regard. By Lawyers have made various substantive amendments to a number of publications to account for the commencement of such legislation. Please see the various other By Lawyers News & Updates posts dealing with those updates.

By Lawyers always keep our content – and our subscribers – up to date!

First home buyers – NSW

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New caps and rules over first home buyers schemes in New South Wales come into force on 1 July 2023.

The newly elected New South Wales government has announced extensions to the First Home Buyer Assistance (FHBA) scheme. First home buyers purchasing a new or existing property valued at less than $800,000 will pay no transfer duty. The cap increases on 1 July 2023 from $650,000. First home buyers who buy a new or existing property valued between $800,000 and $1,000,000 can apply for a concessional transfer duty rate. The qualifying range increases on 1 July 2023 from the previous band of between $650,000 and $800,000.

Purchasers who exchange on or after 1 July 2023 will receive the benefit of these higher caps.

The Minns state government has honoured its pre-election commitment to reverse the annual property tax opt-in for first home buyers. The First Home Buyer Choice scheme does not apply to contracts exchanged after 30 June 2023. Full transfer duty is payable on all contacts exchanged on or after 1 July 2023. Purchasers who exchanged between 16 January 2023 and 30 June 2023 have until settlement to make an election between an annual property tax and full transfer duty.

The residence requirement has been extended – eligible first home buyers must now occupy their home for a continuous period of 12 months instead of six months, within 12 months of settlement. The residence requirement applies to the First Home Buyers Assistance scheme, the First Home Owner grant, and the deferral of transfer duty payment for off the plan transactions.

The  By Lawyers New South Wales conveyancing publications have been updated accordingly. The Purchase of Real Property (NSW) and 1001 Conveyancing Answers (NSW) guides contain detailed coverage of transfer duty concessions and government grants for the purchase of real property.

Unoccupied land – NSW

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The period for which unoccupied land in New South Wales may be treated as a person’s principal place of residence for land tax purposes has been extended.

The Revenue Legislation Amendment Act 2023 (NSW) commenced on 1 July 2023. The Act permits the Chief Commissioner of Taxation to extend from four tax years to six tax years the maximum period during which unoccupied land may deemed a person’s principal place of residence.

The Chief Commissioner’s discretion is enlivened if they are satisfied that delays in completing building or other work has rendered the land uninhabitable. Any such delays must also have been due to circumstances outside the control of the property owner that they could not have reasonably avoided.

The Act is intended to ensure that owners who faced building and construction delays due to the exceptional circumstances during the COVID-19 pandemic, or the recent bushfires and floods, will not be penalised by being required to pay land tax on their still unoccupied land. Any four-tax year period that ended on or after 31 December 2019 may be extended to six years, at the Chief Commissioner’s discretion. Any property owner granted an extension will have up to six tax years in total to complete their building or renovation work, and to occupy the property as a principal place of residence, before land tax is charged.

The By Lawyers New South Wales conveyancing publications have been updated accordingly. The Purchase of Real Property (NSW), Sale of Real Property (NSW), and 1001 Conveyancing Answers (NSW) guides include extensive sections of commentary on land tax and land tax exemptions.

Windfall gains tax – VIC

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A new tax on windfall gains arising from rezoned land applies in Victoria from 1 July 2023 under the Windfall Gains Tax Act 2021 (Vic).

Rezoning

This tax captures the increased value from a significant uplift in a property’s worth from government decisions to rezone land. Revenue raised is intended to fund the construction of infrastructure to complement development from a rezoning.

Land that is rezoned, resulting in an increase of more than $100,000, will have the tax applied: s 9 of the Windfall Gains Tax 2021. The owner of the rezoned land pays the tax, with liability arising when the rezoning occurs.

A tax assessment containing a due date for payment will issue to the owner.

Section 3 creates exclusions, including land zoned for public places or land subject to the Growth Areas Infrastructure Contribution. Residential land not exceeding 2 hectares is also exempt, as are rezonings underway before 15 May 2021.

Rate

If the increase in value is more than $100 000 but less than $500 000, the tax is applied at 62·5% of the part of the taxable value uplift that exceeds $100 000.

If the gain is $500 000 or more the tax is 50% of the taxable value uplift.

Deferral

Owners can defer some or all their liability until the earlier of:

  • a dutiable transaction occurring with the land, for instance a sale and purchase;
  • the landowner being the subject of a relevant acquisition;
  • 30 years after the rezoning event.

Interest accrues on deferred windfall gains tax liability at the 10-year Treasury Corporation of Victoria bond rate.

For a deferral not to cease when a dutiable transaction occurs, the purchaser or transferee must elect to assume the windfall gains tax liability including any accrued interest. If so, the deferral continues and the tax liability rolls over to the new owner.

Full payment is due within 30 days of a deferral ceasing. A form available from the State Revenue Office website needs to be completed to request a deferral. A part payment can be made at any time before the deferral period ends.

The relevant By Lawyers Victorian conveyancing publications have been updated accordingly. The Purchase of Real Property (VIC), Sale of Real Property (VIC), and 1001 Conveyancing Answers (VIC) guides contain extensive coverage of windfall gains tax.

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