New land tax regime poses complexities for property owners and developers

In an effort to assist the issue of homelessness in the ACT, the ACT Government introduced a new land tax regime that has resulted in a number of unintended consequences, recently covered by local media. This article explores the legislative change and some of the potential issues facing property developers, real estate agents, accountants, and property owners.

The ACT Government introduced the new land tax regime effective 1 July 2018 by way of the Land Tax Amendment Act 2018. In a nutshell, property owners would now be charged land tax if they had properties sitting vacant. Whilst that was some time ago, the effects of that legislative change are still being worked through. On 28 March 2019 the new legislation was amended by the Revenue Legislation Amendment Act 2019 and bodies such as the ACT Law Society have been lobbying the ACT Government to clarify uncertainties created by the legislation and the ACT Government’s interpretation of it.

The intention behind the legislation was to encourage property owners to place vacant properties on the rental market as they would now have to pay land tax regardless of whether the property was rented or sitting vacant. The rental income would contribute to offsetting the land tax. This in turn would increase the number of properties on the rental market, hopefully reducing homelessness.

Prior to this legislative change, the regime was quite simple, pay land tax if you rent the property, or if a company or trust owns it.  This meant property owners knew that if a property:

1. was owned by a company or trust, there was always going to be land tax
2. was owned by individuals, they only had to worry about land tax if the property changed from being rented to being not rented, or vice versa.

Now, the new regime provides that ALL property is subject to land tax, unless an exemption applies on the first day of a rating quarter. That means everybody who owns property is going to have to consider, on the first day of every quarter, whether they are entitled to an exemption, and there are many complex exemptions.

There are a significant number of issues that emerge from this new regime, and this article cannot address them all, however some significant points include:

For property developers:

Under the previous regime, property developers were eligible for an exemption from land tax for up to two years from the date they acquired land for residential development and sale. That exemption has been removed.

The new regime does have one exemption that would generally apply for a developer, being the ‘unfit for occupation’ exemption, however, developers must note that this exemption will only apply from the point at which the property is unfit for occupation until the point that the property is fit for occupation. That is, once a developer has a certificate of occupancy, there is no longer an exemption for land tax, and the developer will have an obligation to notify the ACT Government of that change in circumstances (within 30 days, or face penalties). The ACT Government has confirmed that there will be a ‘fix’ to give a developer (and buyers) some relief from this unintended consequence, and to date we have seen this done by way of a ‘waiver’ of land tax for the first quarter after a certificate of occupancy is issued.

For real estate agents:

Real estate agents, especially property managers, must be aware of their statutory obligation to notify the ACT Government about any property owner’s change in circumstances that would mean the property is not exempt from land tax, or if a foreign ownership surcharge would become payable. Failure to do so within 30 days of the change could result in the application of penalties.

For accountants:

Accountants must be aware of their statutory obligation to notify the ACT Government about any property owner’s change in circumstances that would mean the property is not exempt from land tax, or if a foreign ownership surcharge would become payable. Failure to do so within 30 days of the change could result in the application of penalties.

For property owners:

Property owners now need to consider whether their circumstances, or the circumstances surrounding their property, have changed, to result in the application of land tax as at the first day of each rating quarter on an ongoing basis, or face penalties. Property owners will now be required to know about the various exemptions, instead of just considering whether a property is rented or not rented.

When selling, property owners need to be aware that settlements falling on the first few days of a quarter will be problematic, given the requirement to have a certificate of rates and other charges that relates to the quarter in which settlement actually occurs. This could result in potential settlement delays.

This is a complex area that industry is still working through, so it’s essential for anyone with vested interests in property in the ACT to obtain sound legal advice in relation to their obligations.

The Property team at Lexmerca Lawyers, led by one of Canberra’s leading property lawyers, John Chamberlain, is up-to-date with legislative changes and industry developments and can help you achieve the best outcome whether you’re looking to buy, sell, or develop property.