As of January 1, landowners in Victoria are now restricted from entering certain land sale contracts that include provisions requiring purchasers to cover amounts related to land tax or existing windfall gains tax (WGT) liabilities. These regulations, aimed at enhancing transparency, carry penalties for non-compliance.
The legislation distinguishes between land tax and WGT, with specific provisions for each. For land tax, vendors commit an offense if they enter into a contract with a purchase price below $10 million, necessitating the purchaser to pay an amount for land tax imposed under the Land Tax Act. This includes the Absentee Owner Surcharge and Vacant Residential Land Tax. The $10 million threshold is annually indexed, considering any discounts or rebates specified in the contract.
Regarding WGT, an offense occurs if a vendor enters into an option or sale contract requiring the purchaser to cover an existing WGT liability. Unlike land tax, there is no purchase price threshold for WGT, and the prohibition applies to all new options or contracts over Victoria land. Importantly, the offense only applies if the WGT liability exists at the time of entering the option or contract, indicated by the service of a WGT notice of assessment.
Penalties for breaching these provisions include fines of $11,538 for individuals and $57,693 for companies, with the voiding of the prohibited tax provision in the contract. While vendors may still be contractually obligated to complete the sale, the tax cost cannot be passed on to the purchaser.
The new laws, designed to improve transparency, offer purchasers greater certainty about the purchase price, as it now includes land tax and existing WGT costs. However, critics express concern over the lack of a sufficient transition period, posing risks for vendors who may unintentionally enter contracts with prohibited clauses due to the lack of updated precedent documents and education campaigns.
The legislation covers all classes of real estate, not limited to residential sales. The Law Institute of Victoria’s standard form contract, still containing land tax adjustment provisions, is in the process of being updated, and interim measures include suggested special conditions to exclude prohibited tax provisions. Financial risks loom for vendors and advisors who inadvertently violate the new regulations.