Thursday, 19 October 2023

State Taxation Acts and Other Acts Amendment Bill 2023

Introduction and first reading

The PRESIDENT (18:13): I have a message from the Assembly:

The Legislative Assembly presents for the agreement of the Legislative Council ‘A Bill for an Act to amend the Duties Act 2000, the First Home Owner Grant and Home Buyer Schemes Act 2000, the Land Tax Act 2005, the Local Government Act 1989, the Property Law Act 1958, the Sale of Land Act 1962, the Treasury Corporation of Victoria Act 1992, the Valuation of Land Act 1960 and the Windfall Gains Tax Act 2021 and for other purposes’.

Jaclyn SYMES (Northern Victoria – Attorney-General, Minister for Emergency Services) (18:14): I move:

That the bill be now read a first time.

Motion agreed to.

Read first time.

Jaclyn SYMES: I move, by leave:

That the second reading be taken forthwith.

Motion agreed to.

Statement of compatibility

Jaclyn SYMES (Northern Victoria – Attorney-General, Minister for Emergency Services) (18:14): I lay on the table a statement of compatibility with the Charter of Human Rights and Responsibilities Act 2006:

In accordance with section 28 of the Charter of Human Rights and Responsibilities Act 2006 (Charter), I make this Statement of Compatibility with respect to the State Taxation Acts and Other Acts Amendment Bill 2023.

In my opinion, the State Taxation Acts and Other Acts Amendment Bill 2023 (Bill), as introduced to the Legislative Council, is compatible with the human rights as set out in the Charter. I base my opinion on the reasons outlined in this Statement.

Overview

This Bill introduces a number of amendments to the Duties Act 2000 (Duties Act), the First Home Owner Grant and Home Buyer Schemes Act 2000, the Local Government Act 1989 (Local Government Act), the Property Law Act 1958, the Sale of Land Act 1962 (Sale of Land Act), the Treasury Corporation of Victoria Act 1992, the Valuation of Land Act 1960 (Valuation of Land Act), the Windfall Gains Tax Act 2021, and the Land Tax Act 2005 (Land Tax Act).

Many amendments made by the Bill do not engage the human rights listed in the Charter because they either do not affect natural persons, or they operate beneficially in relation to natural persons.

Human rights issues

The rights under the Charter that are relevant to the Bill are the right to property and the presumption of innocence.

Right to property: section 20

Section 20 of the Charter provides that a person must not be deprived of his or her property other than in accordance with law. This right is not limited where there is a law that authorises a deprivation of property, and that law is adequately accessible, clear and certain, and sufficiently precise to enable a person to regulate their conduct.

Duties Act amendments

Clauses 9 to 11 of the Bill address an anomaly in the Duties Act relating to the pensioner and concession card duty reduction to provide that the requirements of this concession apply to all transferees of a transfer rather than only the eligible cardholder. The right to property may be engaged by these amendments as natural persons may be required to pay duty or an increased amount of duty where currently an exemption or higher concession applies.

To the extent that people’s property rights are affected by the above amendments to the Duties Act, any limit is in accordance with the law, which is clearly articulated, not arbitrary, and sufficiently precise to enable affected natural person taxpayers to inform themselves of their legal obligations and to regulate their conduct accordingly.

Local Government Act and Valuation of Land Act amendments

Clauses 15 and 19 of the Bill amend the Local Government Act and the Valuation of Land Act respectively to provide that the capital improved value of land includes the value of any item affixed to the land whether or not it constitutes a fixture at law. The right to property may be engaged by these amendments as natural persons may be required to pay increased amounts of taxes, levies, rates and/or similar charges based on the value of items affixed to their land which are not fixtures at law. To the extent that people’s property rights are affected, any limit is in accordance with the law, which is clearly articulated, not arbitrary, and sufficiently precise to enable affected natural person taxpayers to inform themselves of their legal obligations and to regulate their conduct accordingly. Any limit on this right is further justified as these provisions are anti-avoidance in nature.

Land Tax Act amendments

Division 1 of Part 10 of the Bill relevantly extends vacant residential land tax (VRLT) liability to all vacant residential land in Victoria and to unimproved residential land which has been unimproved for five years or more in established areas of metropolitan Melbourne. The right to property may be engaged by these amendments as natural persons may be required to pay VRLT where they were previously not required to do so.

Clause 43 of the Bill amends the BTR special land tax formula in section 50B of the Land Tax Act to take into account the new top ordinary land tax rate and new absentee owner surcharge rate provided for by the State Taxation Acts Amendment Act 2023. The right to property may be engaged by these amendments as natural persons may be required to pay a higher rate of BTR special land tax.

To the extent that people’s property rights are affected by the above amendments to the Land Tax Act, any limit is in accordance with the law, which is clearly articulated, not arbitrary, and sufficiently precise to enable affected natural person taxpayers to inform themselves of their legal obligations and to regulate their conduct accordingly. The amendments to VRLT are central to the policy intent, which is to improve housing affordability for Victorians and to encourage the use and occupation of residential land in Victoria for residential purposes.

Presumption of innocence: s 25(1)

The right in section 25(1) is engaged where a statutory provision shifts the burden of proof onto an accused in a criminal proceeding, so that the accused is required to prove matters to establish, or raise evidence to suggest, that the accused person is not guilty of an offence.

Sale of Land Act amendments

Clause 17 of the Bill introduces offences into the Sale of Land Act to enforce the new prohibition on passing on land tax and windfall gains tax under certain arrangements over land, e.g. contracts of sale. The right to be presumed innocent may be considered relevant to these strict liability offences which place an evidential burden on the defendant to rely on a defence such as the defence of honest and reasonable mistake.

Although these provisions require a defendant to raise evidence of a matter to rely on a defence, I am satisfied that the provisions impose an evidential, rather than legal burden. Courts in other jurisdictions have generally taken the approach that an evidential onus on a defendant to raise a defence does not limit the presumption of innocence. The available defences relate to matters within the knowledge of the defendant, which is appropriate in circumstances where placing the onus on the prosecution would involve the proof of a negative which would be very difficult.

For the above reasons, I am satisfied that the Bill’s offence provisions do not limit the right to be presumed innocent in section 25(1) of the Charter.

For these reasons, in my opinion, the provisions of the Bill are compatible with the rights contained in sections 20 and 25(1) of the Charter.

Hon Jaclyn Symes MP

Attorney-General

Minister for Emergency Services

Second reading

Jaclyn SYMES (Northern Victoria – Attorney-General, Minister for Emergency Services) (18:14): I move:

That the bill be now read a second time.

Ordered that second-reading speech be incorporated into Hansard:

It is my pleasure to introduce this Bill, which updates a number of taxation, valuation and other Acts to maintain the effective operation of Victoria’s taxation and valuation system.

Vacant residential land tax reform

The Bill makes changes to the vacant residential land tax provisions in the Land Tax Act 2005 (Land Tax Act) to help ease pressure on rents and prices and free up available housing stock. The Bill extends vacant residential land tax to all vacant residential land across Victoria from 1 January 2025, with the period that properties could be deemed vacant starting on 1 January 2024, and expands vacant residential land tax to unimproved residential land in established areas of metropolitan Melbourne from 1 January 2026.

Vacant residential land tax is imposed on residential land that is unoccupied for more than 6 months in a calendar year. Currently, the tax only applies to residential land in a specified area covering the inner and middle suburbs of Melbourne. As the issue of housing affordability remains acute across the whole of the state, expanding vacant residential land tax to the whole of Victoria will encourage all owners of long-term vacant and unoccupied homes in the outer suburbs of Melbourne and in regional Victoria to make their homes available for rent or occupation. The existing suite of exemptions from vacant residential land tax will continue to apply, covering homes that are not rented or occupied in a particular year because they are holiday homes; are occupied regularly for work purposes; are under construction or renovation; or are recently acquired. In addition, vacant residential land tax will not apply in any situation where the property is exempt from the general land tax.

Vacant residential land tax does not currently apply to unimproved land – vacant land without a residence on it – unless the land previously contained a former residence which has been demolished. Unimproved land can therefore remain outside the vacant residential land tax net indefinitely even if it is capable of residential development. To incentivise the development of empty blocks in metropolitan Melbourne and increase the supply of housing, the Bill extends vacant residential land tax to unimproved residential land that has remained unimproved for 5 years or more. This is similar to how land currently becomes subject to vacant residential land tax after 2 years if construction or renovation of a residence is unfinished after that time, or if a residence is left uninhabitable for that time. Consistent with existing law, the Commissioner of State Revenue (Commissioner) will have discretion to extend the period of non-application beyond 2 years if there are acceptable reasons for not improving the land, such as genuine delays outside the owner’s control. The residential status of land will be determined by its zoning under the relevant planning scheme and will exclude any land currently used for, or under development for, a non-residential purpose (such as commercial or industrial use). Two exemptions for unimproved residential land will be available, in relation to unimproved residential land contiguous to a person’s principal place of residence, and land that is incapable of or prevented from being developed for residential use. This measure will take effect from 1 January 2026.

Land tax and windfall gains tax apportionment

Under a typical contract of sale of land, land tax payable in relation to the year of sale is apportioned between the vendor and purchaser. Contracts generally provide that the vendor will pay for land tax (and other outgoings) up to, and including, the day of settlement, and that land tax for the remainder of the year is contributed by the purchaser as an adjustment to the purchase price. This practice can reduce transparency, as the apportioned land tax is not directly reflected in the purchase price, and often results in land tax being passed on to purchasers who are subject to little or no actual land tax liability once the property has been transferred.

Similar issues arise with the windfall gains tax, which is payable by the owner of land when a rezoning occurs. A contract of sale of land may provide that any known or future windfall gains tax liability is either wholly payable by the vendor, or passed on to the purchaser in whole or in part, by way of a special condition under the contract. Such provisions are necessary to deal with potentially unknown future liabilities. However, a windfall gains tax liability that is known prior to the contract should be directly reflected into the purchase price. For example, once the vendor has been served with a windfall gains tax assessment, the vendor would know their tax liability and would generally have received the entire benefit of the rezoning at this stage. Therefore, the value uplift of the land resulting from the rezoning and the resulting windfall gains tax liability should be reflected in the purchase price.

The Bill therefore amends the Sale of Land Act 1962 to prohibit the passing on of a land tax liability (inclusive of absentee owner surcharge and vacant residential land tax) or a known windfall gains tax liability under a contract of sale of land. Under these changes, a provision of a contract or the grant of an option to enter into a contract (for windfall gains tax only) which provides for the adjustment will be void. Offence provisions with significant penalties will also apply to a vendor who enters into a contract, or grants an option to enter into a contract which provides for such adjustment. The Bill also amends the Property Law Act 1958 to remove references to the apportionment of land tax between vendor and purchaser in the general conditions of sale, which may be adopted into a contract not under the operation of the Transfer of Land Act 1958. The amendments will apply to contracts of sale entered into or options granted (as the case requires) on or after 1 January 2024.

Capital improved value and fixtures

The Bill amends the definition of capital improved value under the Valuation of Land Act 1960 to ensure all items affixed to land are included in the capital improved value of land, regardless of who owns the items and whether the items are considered fixtures at law. The Bill also makes a consequential amendment to the Local Government Act 1989 to refer to the updated Valuation of Land Act 1960 definition. The Valuer-General Victoria is responsible for determining capital improved value, which is intended to include the value of land and any improvements. The amendment extends capital improved value to include anything fixed to land, regardless of whether the item constitutes a fixture at common law and regardless of who owns the item. This largely removes the need to apply the common law test distinguishing fixtures and chattels for the purposes of council rates, fire services property levy, vacant residential land tax and windfall gains tax, and will provide greater certainty to owners of land about what forms part of the land for valuation purposes. The amendment takes effect from the day after Royal Assent.

Duties amendments

The Bill makes a number of amendments to the corporate reconstruction and consolidation provisions in the Duties Act 2000 (Duties Act), which provide concessions for certain transactions involving corporate group members, to facilitate corporate groups adopting a more economically efficient corporate structure. The amendments correct technical issues with the provisions. Firstly, the corporate reconstruction and consolidation concession will be extended to sub-sale arrangements where a subsequent purchaser of property acquires a transfer right from the first purchaser under a contract or option arrangement, and a transfer is deemed to occur because there has been additional consideration or land development. Certain exemptions and concessions currently apply to these deemed transfers, but not the corporate reconstruction and consolidation concession. Secondly, the Bill prevents the 10% concessional duty charged on an eligible corporate reconstruction and consolidation from applying concurrently with the 10% concessional duty charged either on a relevant acquisition in a public landholder or a relevant acquisition arising from certain restructures of listed stapled entities, which can erroneously result in only 1% of the normal duty being payable. The amendment ensures that no less than 10% of duty otherwise chargeable is imposed. Thirdly, the Bill corrects the timing of the 30-day period in which subsequent transactions can occur under a multi-step reconstruction or consolidation without incurring further duty. The amendment clarifies that the period begins on the day of the first transaction, rather than the day after the day of the first transaction, so that any transactions occurring later on the same day as the first transaction are fully exempt from duty. The amendments are proposed to take effect from the day after Royal Assent.

The Bill amends the Duties Act to apply key eligibility requirements for the pensioner and concession card duty reduction to all transferees, not just eligible cardholders (i.e. pensioners) who are parties to the transaction. Eligible concession cardholders, including pensioners, may receive an exemption or concession from duty on a home purchased as a principal place of residence. Some of the existing eligibility requirements of the duty reduction, however, apply only to the eligible cardholder under the Duties Act when they are intended to apply to all transferees to the transaction. The First Home Owner Grant and Home Buyer Schemes Act 2000 will also be amended to ensure the existing requirement to elect either the first home owner grant or the pensioner and concession card duty reduction continues to apply. The amendment takes effect from the day after Royal Assent.

Foreign purchaser additional duty and absentee owner surcharge

The Bill amends the Duties Act 2000 and Land Tax Act 2005 to require the Treasurer to table reports of the number and value of exemptions granted from the absentee owner surcharge (AOS) and the foreign purchaser additional duty (FPAD) every 12 months rather than every 6 months. Under the Land Tax Act 2005 an absentee corporation or trust may be exempted from the AOS if the Treasurer, or the Commissioner where delegated, is satisfied the corporation or trust meets requirements set out in guidelines made by the Treasurer and published in the Government Gazette. Similarly, a foreign corporation or trust may be exempted from the FPAD if the Treasurer (or Commissioner where delegated) is satisfied it meets the requirements set out in Treasurer’s guidelines. The Bill amends both reporting requirements to require annual reporting, meaning reports are only tabled in Parliament every 12 months. This better reflects the ongoing, annual nature of land tax, and better aligns the exemption for both AOS and FPAD with revenue and other financial reporting requirements. The amendment takes effect from the day after Royal Assent.

Land tax amendments

The Bill amends the Land Tax Act to ensure continued concessional treatment for some taxpayers who pay land tax on a single holding basis. Land tax is generally calculated on the aggregate taxable value of a landowner’s landholdings, but, some charitable, municipal, public land and principal place of residence (PPR) land for nominated PPR beneficiaries of unit trust schemes and discretionary trusts is eligible for a concessional benefit, where each separate piece of land is assessed as if it is the only land owned by the owner – resulting in a lower marginal rate of land tax being applied. This is known as assessment on a single holding basis. As part of the COVID Debt Repayment Plan, the State Taxation Acts Amendment Act 2023 introduced the COVID-19 debt temporary land tax surcharge (the surcharge). The surcharge commences from the 2024 land tax year, as part of which taxpayers will pay a temporary additional fixed charge of $500 for aggregated landholdings between $50,000 and $100,000, and $975 for aggregated landholdings above $100,000, until the temporary surcharge ends in 2033. However, for owners of charitable, municipal, public land and nominated PPR beneficiaries of unit trust schemes and discretionary trusts, the existing wording of the Land Tax Act applies the $500 or $975 fixed component of the surcharge for each of the lands assessed on a single holding basis, reducing or in some cases eliminating the effect of the concession. The Bill restores the concessional treatment for these taxpayers by applying the surcharge once, based on the aggregated taxable value of affected taxpayers’ landholdings, rather than multiple times. The amendment ensures eligible taxpayers continue to receive a concessional benefit under the land tax regime.

Under the Land Tax Act, eligible build-to-rent (BTR) residential developments may receive benefits including a 50% reduction on the taxable value of land and an exemption from AOS (if it applies) for a period of up to 30 years. A ‘BTR special land tax’ formula is applied to calculate any claw back of tax benefits, if circumstances change and a BTR development no longer satisfies the requirements of the benefit. The formula for BTR special land tax incorporates the top ordinary land tax rate (with the intention to claw back the benefit obtained from the 50% discount for land tax) and adds the applicable AOS rate where the owner is also an absentee owner. The Bill updates the BTR special land tax formula to incorporate the surcharge and the increased AOS rates which apply from 1 January 2024, pursuant to the State Taxation Acts Amendment Act 2023.

Windfall gains tax

The Bill amends the Windfall Gains Tax Act 2021 (WGT Act) to expand the circumstances in which land rezoned to correct obvious or technical planning errors may be exempt from windfall gains tax. Currently, an exemption is only available if the Minister for Planning prepares the correcting amendment to a planning scheme under section 20A of the Planning and Environment Act 1987. However, an exemption is not available for planning corrections undertaken by councils – contrary to the policy intent that correcting rezonings should not result in windfall gains tax consequences. The existing exemption in the WGT Act will be broadened to include any rezoning that the Commissioner is satisfied is for the purpose of correcting an obvious or technical error in the Victorian Planning Provisions or a planning scheme. The amendment takes effect from the day after Royal Assent.

The Bill amends the WGT Act to clarify the definition of excluded rezonings related to the operation of the growth areas infrastructure contribution (GAIC). In recognition that GAIC and windfall gains tax serve similar purposes, the WGT Act provides that windfall gains tax does not apply to a rezoning that causes land to be brought into the contribution area for GAIC purposes, or to the first rezoning of such land after 1 July 2023 (the commencement date of the tax) if it was in the contribution area immediately before that date. However, if land is only brought into the contribution area after 1 July 2023, it is unclear whether the first subsequent rezoning is an excluded rezoning and therefore not liable for windfall gains tax, despite GAIC being payable on the land. To remove the ambiguity and ensure the intent of the exemption is achieved, the Bill clarifies that the first rezoning of land that was in a GAIC contribution area immediately before that rezoning is excluded from the windfall gains tax. The amendment takes effect from the day after Royal Assent.

The Bill amends the windfall gains tax waiver for charitable land so that the waiver can apply proportionately to any tax attributable to a part of land used for charitable purposes at the time of the rezoning. The waiver currently applies if land is used and occupied by a charity exclusively for charitable purposes for 15 years after a rezoning that gives rise to a windfall gains tax liability. However, the existing wording of the WGT Act prevents the waiver from applying if only part of the relevant land was being used for charitable purposes. To align the provision with the intent of the policy, the Bill amends the waiver to apply if only part of land is used for charitable purposes at the time of the rezoning. That is, if the land is used for a charitable purpose and a non-charitable purpose, the windfall gains tax attributable to the part of the land used for a charitable purpose will be able to qualify for a waiver. The amendment takes effect from the day after Royal Assent.

I commend the Bill to the house.

Georgie CROZIER (Southern Metropolitan) (18:15): I move, on behalf of my colleague Mr Mulholland:

That debate on this bill be adjourned for one week.

Motion agreed to and debate adjourned for one week.