By Meng Cheong & Natalie Wang

Is Melbourne reducing the land tax threshold the only rule targeting property investors this time?

The Allan Labor Victorian government has made a big move, and this time the focus is on cracking down on short-term rentals. Not only might landlords need to be licensed, but they might also undergo an annual audit and pay a 7.5% short-term rental tax. This further squeezes landlord who are already dealing with high loan interest rates, potentially forcing them to sell their properties, increasing the housing supply, and putting downward pressure on property prices.

So, what exactly are the specific policies?

Currently, the second reading of the Short Stay Levy Bill 2024 (Vic) was moved on 28 August 2024 and is set to come into operation on 1 January 2025. The legislation introduces a 7.5% levy on short-stay accommodation bookings, including bookings made through platforms such as Airbnb and Stayz.

There are around 63,000¹ short-term rental properties in Victoria, with nearly half of these in regional Victoria. Almost 50,000 of those properties are entire homes that are not available for long-term rental.

The government aims to increase the compliance costs for short-term rental property investors and make Airbnb less profitable through taxation. This will pressure landlords to either abandon short-term rentals, switch to long-term rentals, or sell their properties to increase the availability of long-term rentals for local Australians, thus reducing the pressure on rising rents. The goal is to improve the lives of Melbourne residents, but for property investors, it could close off their income streams. The new rule has been announced as part of the landmark Housing Statement, the final policy has been informed by consultation with local councils, industry and tourism bodies to get the balance right for communities across Victoria.

The levy will not apply to a homeowner leasing out all or part of their principal place of residence for a short stay. When a homeowner goes on holiday and someone else stays there temporarily, the levy does not apply.

The government is also giving local communities the ability to respond to local concerns, with owners’ corporations now able to ban short stays in their developments if approved by 75 per cent of owners. Additionally, changes to the planning system will give local councils the power to regulate short-stay accommodation.

Another issue this may lead to is subleasing. If investors want to find an alternative to Airbnb, they might consider subleasing to maintain the relatively high rental income. While this may not be a concern for CBD apartments, it could be an issue for suburban houses. Owners will need to apply to the council if they are subleasing to more than three people, as this would classify the property as a ‘rooming house.’

Furthermore, we can speculate that along with the current trend, local governments may continue to squeeze the operating profit of short-term rentals and increase compliance costs. After the introduction of the licensing requirement, additional measures could follow, such as landlord training courses, commercial insurance, government inspections, etc.

Victoria property taxes today

Currently, Victoria has the highest property-related taxes in Australia. In 2023, the land tax threshold was lowered, resulting in higher taxes for property investors. This was followed by the foreign Absentee Owner Surcharge, and now, with this move targeting short-term rentals, property investors have more reasons to be concerned.

While there is no precedent in Australia, recent laws against Airbnb in New York have sparked some public discussions. The investment portfolio for real estate investors may need to be updated, with long-term capital gains and long-term rentals perhaps being more favourable in light of the new fiscal approach.

¹https://www.premier.vic.gov.au/more-long-term-rentals-and-more-social-homes

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.

By Tracy Collins & Morgan Collens

Having a Will is essential for ensuring that your estate is distributed according to your wishes after your death. It is equally important to regularly update your Will to reflect any changes in your circumstances and/or intentions.

Legal Requirements for Updating a Will

Under the Wills Act 1997 (Vic), a Will can be altered through a codicil (a document that amends rather than replaces a previously executed Will) or by creating a new Will. Both methods require the same formalities as the original Will: the document must be in writing, signed by the person making the Will, and witnessed by two individuals who are not beneficiaries.

Life Changes Necessitating an Update

Several life events may necessitate updating your Will:

1. Marriage or Divorce: In Victoria, marriage revokes a Will unless it is made in contemplation of that marriage. Conversely, divorce does not automatically revoke a Will but can affect the distribution of your estate, particularly regarding any bequests to a former spouse.
2. Birth of Children or Grandchildren: The arrival of new family members is a significant reason to update your Will to ensure they are included as beneficiaries.
3. Significant Financial Changes: Acquiring or disposing of substantial assets should be reflected in your Will to ensure your current financial situation is accurately represented, particularly if you have gifted specific assets to specific beneficiaries.
4. Changes in Relationships: Alterations in your personal relationships, such as the dissolution of friendships or the death of a beneficiary, require corresponding adjustments in your Will.

Risks of an Outdated Will

Failing to update your Will can lead to unintended consequences, such as:

1. Disputes Among Beneficiaries: An outdated Will can lead to conflicts among beneficiaries, potentially resulting in costly legal disputes and strained family relationships.
2. Unintended Beneficiaries: Without updates, assets might go to individuals you no longer wish to benefit, while those you intend to provided for may be overlooked.

Practical Steps for Keeping your Will Updated

1. Regular Reviews: It is good practice to review your estate planning from time to time, particularly when your circumstances change. We recommend reviewing your documents every three years.
2. Clear Documentation: Keep a record of any amendments or new Wills, and inform your executor and close family members of the location of these documents.

If you are concerned about your estate planning arrangements, contact Nevile & Co today!

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.

By Morgan Collens

Junior Lawyers aren’t really assessed on their technical ability. It’s important, but it’s usually something that law firms expect to be developed over time. Here are five things that may be more important for junior lawyers to focus on instead:

Develop Strong Research Skills

Effective legal research is a critical skill for junior lawyers. Improving your research skills can make a significant difference in the quality of your work. To enhance your research abilities:

• Familiarize yourself with the various legal research databases and tools used by your firm.
• Practice efficient keyword searching to find relevant case law, statutes, and secondary sources quickly.
• Stay updated on recent legal developments in your practice area by regularly reading legal journals and news.

Manage Your Time Effectively

Time management is crucial in the legal profession where deadlines are often tight.

To manage your time effectively:

• Use a planner or digital calendar to track deadlines and important dates.
• Break down large projects into smaller, manageable tasks and prioritize them.
• Allocate specific time slots for focused work and minimise distractions during this period.

Build Professional Relationships

Networking and building professional relationships are vital for career growth. To cultivate strong professional connections:

• Attend industry events, seminars, and conferences to meet other legal professionals.
• Seek out mentorship opportunities within your firm or through professional associations.
• Engage with colleagues and superiors by participating in firm activities and social events.

Enhance Your Writing Skills

Clear and concise legal writing is essential for drafting documents and communicating with clients. To improve your writing skills:

• Take advantage of any writing workshops or training sessions offered by your firm.
• Review and analyse high-quality legal documents to understand effective writing techniques.
• Practice writing regularly and seek feedback from supervisors to refine your style and accuracy.

Stay Organised

Keeping your work organized ensures efficiency and reduces stress. To maintain organization:

• Create a filing system for both physical and digital documents.
• Keep detailed notes on your tasks and progress to avoid missing important details.
• Regularly review and clean up your workspace to maintain a productive environment.

By focusing on these additional areas, junior lawyers can further enhance their effectiveness and establish a strong foundation for their legal careers.

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.

By Jack Nevile

What is VLRT?

The Victorian Government is broke and needs money. Every announcement from the State for the foreseeable future should be seen through this lens, at least until politicians decide to stop wasting your money, or hell freezes over. Consider investing in a good jacket. 

How does a government get the most feathers from the duck, with the least amount of quack? Remember, politicians don’t want to lose voters but desperately need to take their money. The tried-and-true method is starting with politically popular taxes. They’ve announced a swathe of fees for foreigners, businesses, and landlords, the usual easy targets. But another type has also arisen – the landbanker. This term creates a fantastic scapegoat – they’re hoarding precious land which should be ours! – and nobody is going to write long newspaper articles crying for a wunch of bankers, after all. 

Vacant Residential Property Tax is a tax on any property in Victoria which was vacant for more than 6 months in the calendar year. It is levied at 1% of the Capital Improved Value (the value shown on your rates notice – usually the market value minus ~10%) for the first year, and increases by 1% each subsequent year, up to a maximum of 3% per year. 

The main ways to avoid the tax are:

• Live in the property yourself;
• Rent out the property under a Lease or bona fide short-term letting arrangement, and the property was actually occupied for 6+ months;
• Transact the property, i.e. sell, or have bought it in that calendar year;
• The house is a holiday home used by either you or your relatives for 4+ weeks of the year; or
• The land has been uninhabitable for under 2 years.

Surely it’s not a big deal. How many empty houses can there possibly be?

It is a big deal. And don’t call me Shirley. According to Prosper, 1.5% of property in Melbourne is completely empty, and about 5% are usually empty, if you calculate based on water consumption. If you go for a long walk around your neighbourhood you will probably see heaps. My guess is the real number of completely empty properties is far above 2% – leaky taps don’t pay rent. Prosper’s report is here:

What VLRT means for you

Combined with other new taxes, many property investors are abandoning the good ship, Victoria. Just look at the national house price indices:

(h/t to @rabbit_wealth on Twitter)

People who may have otherwise held their property in the hope of capital appreciation are selling, so much more supply is available than usual. 

If you’re a renter this is good news – empty/abandoned property should start to hit the market. In my own neighbourhood I notice empty properties – an unfortunate side effect of doing squatters rights law – and some of them have suddenly been spruced up and are now for rent at exorbitant prices. More property for rent means lower prices. 

If you’re an enterprising renter this is even better news – you may know of an abandoned property somewhere you want to live, and you may also know the VLRT on an empty $1,000,000 house is $10,000 a year. Better you live in it for cheap rent, than it staying empty and the owner pays the government. You don’t have to deal with an agent, the landlord gets a tax break, and you get a home. 

Speaking of, first homebuyers are seeing big wins – the government is splashing out money in the form of 25% equity loans with 0% interest, and prices are dropping. Some of my first home buyer clients are buying simply because the mortgage on the other 75% is cheaper than renting the same house. 

My final thoughts 

If you’re lucky enough to have an empty property lying around, it’s time to do something about it before January 1 when the tax hits. Call our office on (03) 9664 4700, or send me an email at jack.nevile@nevile.com.au. 

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.

By Morgan Collens

Your Guide to Buying a Home

Navigating the intricacies of property ownership can be daunting, especially when it comes to the legalities of transferring ownership. This is where conveyancing steps in, providing crucial assistance to buyers in the complex settlement process of purchasing a new home.

What is Conveyancing?

Conveyancing is the legal realm concerned with the transfer of real property ownership. It involves the transition of ownership from one party to another.

For sellers, also known as vendors, this entails disclosing pertinent information to potential buyers through documents like the Section 32 Statement.

Why do you need a Conveyancer?

Having a conveyancer by your side is essential due to the intricate paperwork involved, often laden with legal jargon and technical terms.

When purchasing, your conveyancer will meticulously review contracts and disclosure statements, ensuring you understand the terms and conditions, as well as guiding you through the necessary due diligence.

What does a Conveyancer do?

A conveyancer shoulders the responsibility of facilitating the transfer of property title, advising on legal matters, and handling paperwork, allowing you to focus on the practicalities of moving. They navigate complex legal requirements on your behalf, such as adjustment calculations and changing tax laws, alleviating the stress of the process.

What to Expect from your Conveyancer

Your conveyancer handles all aspects of the ownership transfer process, from preparing legal documents to liaising with relevant parties, including banks, sellers, and estate agents. For sellers, they manage document preparation, mortgage discharge, and fund disbursement, ensuring a smooth transaction.

Settlement Day and Beyond

On settlement day, your conveyancer oversees the transaction, ensuring a seamless exchange of keys and completion of financial adjustments. Post-settlement, they handle final paperwork and liaise with local authorities regarding ownership changes, offering ongoing support as needed.

In the intricate landscape of property transactions, a conveyancer is your trusted guide, simplifying the process and safeguarding your interests every step of the way.

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.

By Jack Nevile & Anna-Nikol Tanti

Victoria is the place to be – taxed. The government has unveiled a host of new property taxes over recent years. Property is a great way for governments to raise revenue because there is no escape – owners can’t pick up the land and take it elsewhere. The only way out is to sell and pay the tax upon settlement. And if you decide not to pay, don’t worry – they’ll sell it for you. 

Any increased cost of owning property is factored into the current price. While slightly up, Victorian prices have actually fallen over the past few years after adjusting for inflation. In plain English, this means that your house which was worth 10,000 trips to the supermarket a few years ago may only be worth 8,000 trips now. This is good news for first home buyers, who are seeing the benefit of rising wages, falling prices, and generous government handouts. 

These falling prices contrast dramatically to other states which don’t have these taxes. The figures below depict 12 months of price changes of Australian property in certain cities. Notice the odd man out? 

(h/t to @rabbit_wealth on Twitter)

So what are the taxes that property owners need to be aware of? We’ve simplified them below.

One-off taxes

Stamp Duty

Stamp duty is 5.5% of the purchase price. Victorian stamp duty is very high in comparison to other states as the reductions/exemptions cap is at a very low level – only $750,000, which hardly buys anything in the metro area these days. 

If you’re a foreign purchaser, you must pay Foreign Purchaser Additional Duty. This is an additional 8% stamp duty. A foreign purchaser is not an Australian citizen or a Permanent Resident, or New Zealand citizen present in Australia at settlement. 

Windfall Gains Tax

Windfall gains tax applies to the rezoning of land that increases the value by more than $100,000. It is taxed at 50% of the capital gain. An exemption exists for residential property.

Metropolitan Planning Levy

This tax is payable if the estimated cost of a development in metropolitan Melbourne exceeds $1,207,000. The levy is $1.30 for every $1,000 of the estimated development costs. It is paid as part of your planning permit application.

Growth Areas Infrastructure Contribution

This tax is paid upon the purchase or development of a large piece of land within a growth-zoned area. Usually this is paid by the developers, who then pass it onto individual buyers in their sale prices.

FIRB

The Foreign Investment Review Board charges $42,300 per million dollars or part thereof on the purchase price, for any foreigners looking to buy established Australian property. There is a significant discount for new property.

Taxes Payable Annually

Land Tax

Land tax is based on the total taxable value of all the land you own in Victoria, excluding exempt land. Exempt land includes land such as your home. Land tax is payable on investment properties, commercial properties and vacant land.

COVID Debt Repayment Plan

This is a “temporary” 10-year change to land tax. For people holding land valued between $50k and $100k, a $500 tax is payable. Between $100k and $300k, $975 is payable. For land holdings above $300k, $975 is payable plus an increase of 0.1% above standard land tax.

Commercial and Industrial Property Tax

This tax is for commercial and industrial properties and is a transition scheme away from stamp duty. It is levied at 1% of the land value.

Absentee Owner Surcharge

The absentee owner surcharge is a 4% tax on the value of all land in Victoria owned by an absentee owner. It is very expensive for land, and expensive on apartments.

An absentee owner is an individual that:

• • Is not an Australian citizen or permanent resident;
  • Does not ordinarily reside in Australia;
  • Was absent from Australia on 31 December 2023 for the purpose of the 2024 land tax assessment; and
  • Was absent for more than 6 months throughout 2023.

Vacancy Fee Return for Foreign Owners

Foreign Owners must lodge vacancy fee returns every year. If the property is not occupied or genuinely available for rent, you will be required to pay the current FIRB fee. You must lodge a Vacancy Fee Return even if the property is not vacant. You will be receiving email reminders about this every year.

Vacant Residential Land Tax

Homes that are vacant for more than 6 months per year are taxed at 1% of thier capital improved value, paid in addition to your land tax. This increases to 2% in the second year it remains vacant, and 3% in the third, where it stops.

Council Rates

Council rates are a property tax used to fund community infrastructure and services. It is calculated by multiplying the value of the property by the rate in the dollar. The rate in the dollar is set by each council.

Fire Service Property Levy

This levy is used to fund Victoria’s fire and emergency services. It is paid annually and includes both a fixed and variable rate. The fixed charge for 2024 (including vacant land) is $132 for residential and $267 for non-residential land. The variable rate depends on the capital improvement value of the land and the land use classification.

When will the property taxes stop coming? 

Australians love property – bidding the prices up to astronomical heights is our national obsession. Governments love spending money, and they tax where the money is. At some point, these two opposing forces are going to collide. Victoria is simply the canary in the coal mine.

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.

By Tracy Collins & Morgan Collens

The concept of testamentary freedom in Australia has a rich historical background deeply rooted in English common law traditions. Testamentary freedom refers to an individual’s right to dispose of their property upon death according to their own wishes, as expressed in their Will, without interference from external parties.

Australia inherited its legal system from England, and the principle of testamentary freedom was established early on. During the colonial period, Australian courts primarily followed English common law principles, including those relating to Wills & Estates. Throughout the 19th and early 20th centuries, testamentary freedom was largely unchallenged in Australia. Testators had broad discretion in deciding how to distribute their assets, including the ability to disinherit family members or leave their estate to charitable organizations.

However, over time, societal attitudes towards family obligations and the distribution of wealth began to shift. This led to increasing calls for reforms to the law of succession to ensure fair and adequate provision for family members and dependents, especially in cases where they were left without adequate support.

In response to these concerns, Australian states and territories began to enact legislation to provide for family provision claims, which allowed certain eligible individuals to challenge the terms of a Will if they believed they had not been adequately provided for by the deceased. These laws introduce limitations on testamentary freedom by enabling courts to intervene and make orders for provision from the deceased’s estate to eligible claimants.

Despite these developments, testamentary freedom remains a fundamental principle of Australian succession law. While the law now recognizes the importance of providing for family members and dependents, individuals still generally have significant autonomy in determining how their assets will be distributed upon their death. However, this autonomy is subject to certain legal constraints and the possibility of family provision claims, which aim to strike a balance between testamentary freedom and the protection of vulnerable beneficiaries.

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.

By Morgan Collens

Settlement marks the culmination of your property purchase journey, where the culmination of financial transactions and legal processes brings you one step closer to homeownership. Here is what to anticipate on this pivotal day.

Duration of Settlement

Typically spanning 30 to 90 days, the settlement period is mutually agreed upon by both parties and specified in the contract of sale. This timeframe allows for the fulfillment of financial and contractual obligations and facilitates logistical arrangements for moving.

Key Players

Settlement involves financial representatives (banks or lenders) and legal representatives (conveyancers or solicitors) representing both parties. Conveyancers play a vital role throughout the process, overseeing checks, searches, signings, and certifications essential for a smooth transition.

Property Inspection

Consumer Affairs Victoria stipulates the buyer’s entitlement to inspect the property before settlement. Coordination with the estate agent ensures a final inspection to verify the property’s condition. For new homes, engaging a building inspector is advisable to ensure compliance with building codes.

Financial Transactions

On settlement day, the buyer disburses the balance of the purchase price to the vendor. Conveyancers coordinate with banks to facilitate the transfer, ensuring a seamless financial transaction. Additionally, payment of land transfer duty (stamp duty) and lenders mortgage insurance is settled electronically.

Legal Formalities

Your conveyancer manages the preparation and submission of all legal documents required for property transfer. Once signed by both parties, these documents are sent to the titles office for registration, confirming your ownership. Any outstanding fees are settled to ensure a smooth transition of ownership.

Notification Processes

Following settlement, a Notice of Acquisition is dispatched to relevant authorities, notifying them of the property’s change of ownership. Your conveyancer ensures compliance with legal obligations, including notifying water authorities, local councils, and other pertinent entities.

Settlement Date Adjustments

Any changes to the settlement date require mutual agreement between buyer and seller. While extensions are permissible, penalty interest may be incurred. It’s crucial to adhere to contractual terms to avoid complications.

Additional Considerations

Arrange insurance and utility connections ahead of settlement day to facilitate a seamless transition. Contacting preferred suppliers ensures timely connection of essential services, streamlining your move into the new property.

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.

By Jeffrey Stone & Linnea Cederberg

The Australian Government Migration Review has now determined that the BIIP visa category yields unsatisfactory economic outcomes for Australia. As part of the Migration Strategy, the Australian Government has declared a halt on new allocations for the BIIP visa, while considering a new talent and innovation visa; the National Innovation visa. This is expected to launch by the end of 2024.

Starting from July 2024, the BIIP will be permanently closed, and no further Applications will be accepted. Applications for the BIIP visa still pending will be processed according to Government priorities and Migration Program planning levels.

In addition, the policy guidance for the BIIP will be strengthened in order to ensure that all incoming business migrants have had a successful business background and will bring an economic benefit to Australia. This adjustment aims to prioritize those highly–skilled individuals in the 2024–25 permanent Migration Program to create a more resilient and prosperous economy.

Individuals holding a subclass 188 visa who meet the requirements for the Business Innovation and Investment Program (subclass 888) visa will still be eligible to pursue this pathway after July 2024.

(Received from Department of Home Affairs: Immigration and Citizenship, Migration Program Planning Levels) 

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.

You may be required to submit an investment proposal for review if you plan to acquire the following commercial assets:

Substantial interest in an entity or an Australian business 

• A substantial interest (typically at least 20 percent) in a general Australian business, corporation, or trust—the monetary threshold is: 

• • $310 million for most entity or business investments 
  • $1,339 million for private investors from certain free trade agreement countries 
  • $310 million for private investors from free trade agreement countries investing in sensitive businesses 
  • $0 for foreign government investors. This may exclude certain governments and their business activities. 

Direct interest in an agribusiness 

• A direct interest (generally at least 10 per cent, or a position of control) in an agribusiness —the monetary threshold is: 

• • $0 for foreign government investors 
  • $67 million (cumulative) for private investors. 

Australian media business 

• A direct interest (generally at least 10 per cent, or a position of control) in an Australian media business, regardless of value. 

National security business 

• A direct interest (generally at least 10 per cent, or a position of control) in a national security business, regardless of value. 

Starting an Australian business 

• If you are a foreign government investor, you will also need to notify us if you: 

• • are starting an Australian business (including starting a national security business), or 
  • already carry on an Australian business but the business starts a new and different activity. 

(Received from the Department of The Treasury: Foreign Investment Information, Commercial Acquisitions)  

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.