The 2021 Victorian State Budget – what property developers need to know
The 2021 Victorian Budget featured a range of measures which on the one hand provide some relief for developers and home buyers and on the other hand target high value property holdings and transactions. We have set out a high level overview of the major tax and duty items below.
Windfall Gain Tax
One of the most talked about budget announcements is the windfall gain tax (WGT). Although this tax has not been included in the State Taxation and Mental Health Acts Amendment Bill 2021 introduced to Parliament on 20 May 2021, it has been announced that from 1 July 2022 there will be a 50% tax on gains of $500,000 and above associated with planning decisions to rezone land.
The WGT will be levied where land has been rezoned and the uplift in value from the rezoning is more than $100,000, with a 50% tax rate where the value increases by more than $500,000. There will be exceptions though, such as for land subject to the Growth Areas Infrastructure Contribution (GAIC). We plan to issue a more comprehensive summary of this proposed new tax in the coming weeks.
In order to provide relief to developers struggling to sell stock, there will be a temporary 100% duty exemption for purchasers that acquire a new dwelling worth up to $1 million in the Melbourne local government area where the property has been unsold for 12 months or more since completion. A “new dwelling” is one that has never been sold, rented out or used as short term accommodation (such as Airbnb). This will apply to all contracts entered into from 21 May 2021 to 30 June 2022. If a new dwelling is not eligible for the 100% exemption (e.g. it has been unsold for less than 12 months), a 50% duty concession will apply.
This year’s Budget also introduces a premium rate of land transfer duty (6.5%) for contracts entered into on or after 1 July 2021 for property transfers with a value in excess of $2 million.
Finally, the threshold for the off-the-plan concession will be increased to $1 million for all contracts entered into from 1 July 2021 to 3 June 2023.
Land tax concession and VRLT waiver
For the 2022 land tax year, land tax rates will increase by 0.25% for taxable landholdings exceeding $1.8 million and by 0.3% for taxable landholdings exceeding $3 million. The tax-free threshold will increase to $300,000 for the 2022 land tax year and subsequent years.
Furthermore, the current exemption from vacant residential land tax (VRLT) for newly residential land has been extended to apply for up to two land tax years. For instance, land in Melbourne that became residential land in the 2020 land tax year will be exempt from VRLT for the following two land tax years despite the property being vacant for more than six months in the 2021 and 2022 land tax years.
The payroll tax-free threshold will now increase to $700 000 from 1 July 2021. This increase was originally scheduled to happen from 1 July 2022. Furthermore, the regional employer payroll tax rate will now decrease from 2.02% to 1.2125% from 1 July 2021.
There will also be a 0.5% surcharge (the Mental Health and Wellbeing Levy) on wages paid in Victoria by businesses with national payrolls over $10 million a year from 1 January 2022. Businesses with national payrolls above $100 million will pay a further 0.5% (i.e. an additional 1% in total).
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