The End of Land Tax Adjustments in Victoria

In January 2024, Victorian property law underwent a significant change with the introduction of a new regulation banning land tax adjustments between buyers and sellers during property transactions. This shift has impacted both homeowners and investors in different ways.

For homeowners, the change is a welcome relief. Previously, land tax obligations could be negotiated between buyers and sellers, potentially leaving buyers responsible for paying a portion of the seller’s land tax. Now, with the new law, homeowners are no longer at risk of this additional payment at settlement. This provides a smoother settlement process, as buyers are no longer burdened with unexpected land tax costs.

While the change benefits homeowners, it has created challenges for property investors. Under the old system, investors could adjust land tax payments during settlement, effectively passing on the cost to their buyer. However, the new law prevents this, meaning investors must absorb the full year’s land tax cost, even for a period in which they no longer own the property. This increases expenses for investors and developers and potentially make property investments in Victoria less attractive.

The new law raises concerns about overpayment of land tax. Land tax payers who have sold their property will find themselves paying land tax for periods after settlement up to 31 December of the settlement year. To address this, there should be a refund process for any period after settlement that land tax has been paid. As at the date of this article, there has been no decision to refund any land tax payments.

Whilst the new law protects homeowners from paying land tax liabilities that they would not ordinarily be responsible for, it presents challenges for investors and developers, who can no longer pass on this cost. We await news of a reform to the legislation to allow a refund to land tax payers for payment of land tax after the period of ownership. This would help balance the interests of both homeowners and investors in the evolving property market.