Starting from 1 January 2024, proposed changes to the Sale of Land Act 1962 (Vic) will prevent vendors in Victoria from apportioning land tax between themselves and purchasers in land sale contracts. This change is part of the State Taxation Acts and Other Acts Amendment Bill 2023 introduced to the Parliament of Victoria on 3 October 2023.
It has been common practice to adjust land tax at property settlement, similar to how other ongoing costs like Council rates are divided between the vendor and purchaser. If the Bill becomes law, any clause in a land sale contract requiring the purchaser to cover the vendor’s land tax liabilities (both existing and future) will be prohibited. Any inclusion of such clause will be considered a civil offence with fines of up to approximately $11,500 for individual vendors and around $58,000 for company vendors.
The current practice of land tax apportionment has its advantages, particularly for purchasers, as it ensures unpaid land tax is settled at the time of property transfer. Without this practice, there’s a risk that vendors may not pay their land tax obligations, which could burden purchasers, especially if vendors become insolvent. Unless specific contractual protections are negotiated, purchasers could be held responsible for unpaid land tax.
Vendors also face risks under the proposed prohibition. Land tax assessments are based on the vendor’s land holdings as of December 31 each year. If a settlement is scheduled near the end of the year, vendors could be liable for an entire year’s land tax if the purchaser defaults and the settlement occurs in the following year. Current contracts can include provisions to protect vendors from this, but the proposed prohibition renders these protections void, limiting vendors’ options for recovering such additional costs.