Is Land Tax Adjusted At Settlement

If you are buying or selling in Melbourne, the simple answer is no for most deals: from 1 January 2024, a vendor cannot pass land tax to the purchaser in a contract of sale where the sale price is under the statutory threshold amount.

Any clause that tries to do so is void, and it is an offence for a vendor to include it. The threshold started at $10 million in 2024 and, for 2025, is $10.4 million. Above the threshold, adjustment can still be negotiated, which is uncommon in residential sales but can arise in larger commercial transactions.

That means the old habit of splitting the land tax line on the statement of adjustments is, in practice, gone for the vast bulk of Victorian property sales. Vendors should budget to wear the calendar year's land tax, and purchasers should not see land tax on their settlement adjustments for sub threshold deals.

Why Land Tax Used to Be Adjusted, and Why Most Cannot Be Now

For years, most Victorian contracts used standard clauses that adjusted outgoings, including land tax, usually on a 'single holding' basis. In other words, if settlement took place in June, the purchaser would reimburse a pro rata share for the rest of the year. Practitioners were taught to look for this line as routinely as council rates.

The law changed. New sections in the Sale of Land Act 1962 prohibit a vendor from passing land tax to a purchaser in contracts where the price is below the threshold. A clause that tries to shift land tax is void, and inserting such a clause is an offence that can attract penalties of 60 penalty units for an individual and 300 for a company. Legal commentators and the State Revenue Office have both spelt this out since the changes took effect.

How Land Tax Actually Works in Victoria

Land tax is assessed for the calendar year on the land you own as at midnight on 31 December of the prior year. Assessments are issued between January and June. Exempt land includes your principal place of residence; non exempt land includes investment properties, holiday homes, most commercial premises and vacant land.

If you sell in, say, March, and you owned the property at midnight on 31 December, you are still the one assessed for that year's land tax. There is no part year refund from the SRO simply because ownership changes hands. Historically, parties fixed that commercial reality with an adjustment clause. Now, for most sales under the threshold, the law says the vendor absorbs that cost and cannot recover it from the buyer at settlement.

What Changed from 1 January 2024, and What It Means in Melbourne

From 1 January 2024, Victoria introduced a prohibition on recovering land tax at settlement for contracts of sale under the threshold amount. The measure applies to contracts entered into on or after 1 January 2024. Consumer Affairs Victoria publishes the CPI indexed threshold each year. For 2025, it is $10.4 million, inclusive of GST.

The legislation makes two things crystal clear:

1. Any term that purports to require a purchaser to pay an amount for or toward the vendor's land tax is of no effect
2. It is an offence for a vendor to enter into such a contract

Penalties at the current settings align to 60 units for individuals and 300 for companies, which legal guidance notes translate into five figure fines.

There is also a link to Victoria's commercial and industrial property tax reform. The prohibition language in section 10G refers to both land tax and commercial and industrial property tax, so those drafting commercial contracts need to be alive to both regimes.

So, Is Land Tax Ever Adjusted at Settlement Now?

In short, only in limited cases. If the sale price equals or exceeds the threshold amount for the relevant calendar year, the prohibition does not apply. Parties to large commercial transactions sometimes negotiate bespoke risk allocations. For virtually all Melbourne residential sales, and for most sub threshold commercial deals, there is no longer any lawful land tax adjustment at settlement.

What Your Statement of Adjustments Now Looks Like

Your statement of adjustments should continue to apportion things like council rates, water rates and owners' corporation fees by days, as usual. What you should not see on a sub threshold contract is a line that charges the purchaser for a share of land tax. If you do, that clause is ineffective and, more critically for vendors, inserting it may amount to an offence. A careful conveyancer will strike it out and re issue.

The Must Have Document: The Property Clearance Certificate

Even though land tax is not adjusted in most cases, unpaid land tax can still be a problem. Land tax, including interest and penalty tax, is a first charge on the land. That is why every prudent purchaser orders a property clearance certificate from the SRO.

The certificate confirms the amount of tax that is secured by a statutory charge, and a purchaser who obtains a certificate is protected against recovery above the amount stated. You can also order a free update close to settlement to capture last minute changes.

A quick practical note: The certificate used to be called the 'land tax clearance certificate'. Many agents still use the old phrasing, but you are looking for the property clearance certificate line item in your Section 32 pack or your conveyancer's searches.

Real Melbourne Scenarios That Show How This Plays Out

Brunswick Investment Unit, Settled 15 March 2025

The vendor owned the unit on 31 December 2024. The SRO issues the 2025 land tax assessment to the vendor. The purchaser does not reimburse a part year amount at settlement because the contract price is well under the 2025 threshold. The purchaser's conveyancer still orders a property clearance certificate and, if necessary, insists that any land tax charge is paid out from the sale proceeds before settlement is finalised.

Warehouse in Footscray, $12.5 Million Sale, Settled 30 August 2025

The prohibition does not apply because the sale price exceeds the 2025 threshold. The parties may negotiate whether land tax is adjusted or priced into the deal. The drafting should be precise, since section 10G targets contractual recovery, and practitioners should also consider the interaction with commercial and industrial property tax obligations.

Family Home in Blackburn

A principal residence is exempt from land tax, so there is no assessment to adjust in the first place. You may still see adjustments for rates, water and owners' corporation fees if applicable. If someone has moved out and rented the home, or converted it to a holiday house, the exemption may not apply, which is one reason to check the clearance certificate during due diligence.

Apartment in Southbank Left Vacant

Vacant residential land tax is separate from land tax and has been expanded to cover all vacant residential properties across Victoria from 1 January 2025. It is not the same tax and is handled through different rules and notifications, which your conveyancer will track alongside land tax searches.

Buyers: Your Melbourne Checklist

Read the Section 32 carefully. A good pack includes up to date searches and certificates. If you see a contract clause trying to adjust land tax on a sub threshold deal, push back. The clause is void, and it should not be there.

Order a property clearance certificate in your own name, then request a free update a week out from settlement. This protects you if there is any amount beyond what the certificate shows.

Expect no land tax line on the settlement adjustments for most Melbourne homes and investment units. Keep an eye on other outgoings and the final meter readings instead.

I still remember a Carlton terrace purchase where the buyer phoned me from the tram outside the agent's office, worried because a friend had told her to 'save extra for land tax'. We ran through the contract over the phone, line by line. No land tax adjustment because the price was well under the threshold, and the clearance certificate came back clean. She still laughs about that call, and I still remind clients: land tax is a year based assessment, but settlement adjustments have changed.

Vendors: What Smart Planning Now Looks Like

Budget for the year in which your settlement will occur. Because land tax is assessed on who owned the property at midnight on 31 December, a January settlement can mean you carry almost a full year of land tax with no ability to recoup from the buyer under a sub threshold contract. Price accordingly.

Have your conveyancer remove any legacy clause that tries to adjust land tax if your contract price is below the threshold. Inserting such a clause risks penalties.

Clear the charge. Confirm the amount on the property clearance certificate and arrange for the tax to be paid from sale proceeds so the title is not encumbered when the keys change hands.

I have lost count of the St Kilda settlements where we have had a last minute wobble because a vendor assumed land tax would 'sort itself out' at the table. It does not. Today, for most sales, it must be priced in, then paid out, with the certificate to prove it.

Common Questions

Does the prohibition apply to all contracts?

No. It applies to contracts where the sale price is less than the threshold amount for the relevant year. The threshold is CPI indexed and published by Consumer Affairs Victoria. For 2025 it is $10.4 million, inclusive of GST.

What about contracts signed in 2023?

The changes apply to contracts entered into on or after 1 January 2024. Earlier contracts may still reflect the old approach, which is why your conveyancer will read the dates and wording carefully.

What if land tax is unpaid on the day?

Land tax is a first charge on the land, which means it has priority. The charge is removed once the assessed amount is paid. Your conveyancer will usually direct funds from the vendor's proceeds to the SRO at settlement to clear it.

Isn't this unfair on vendors?

The policy goal was transparency. The government's position is that known costs should be reflected in the price, rather than adjusted later. Industry notes and government guidance both point to that rationale.

Anything else to watch?

Vacant residential land tax is different from land tax, and separate obligations may apply if a home has been left unused for six months or more. Trusts and absentee owners face surcharges, which are reflected in assessments. Your conveyancer or tax adviser will flag these early.

What to Ask Your Conveyancer in Melbourne

• 'Please confirm our contract is compliant with section 10G and the current threshold.'
• 'Have we got a property clearance certificate in the purchaser's name, and can we order an update before settlement?'
• 'If settlement might drift across New Year, how does that affect the vendor's land tax exposure, and should we revisit the price?'
• 'Are there any separate notices for vacant residential land tax or commercial and industrial property tax that we need to disclose or chase?'

A Melbourne Centred Wrap Up

If you are heading to settlement anywhere from Werribee to Ringwood, the key is to remember how the Victorian rules now operate. Land tax is a calendar year assessment based on who owned the property at midnight on 31 December. Since 1 January 2024, for sub threshold contracts, you cannot pass that land tax across the table through a settlement adjustment.

Purchasers protect themselves with a property clearance certificate, and vendors plan ahead, set their price with the tax in mind, and make sure the charge is cleared from title. That is the modern, clean way to settle in Melbourne.

Need Tailored Help, Not Guesswork?

Pearson Chambers Conveyancing offers a complimentary Section 32 contract review and straight answers about your settlement adjustments. Email contact@pearsonchambers.com.au and let us check the contract, the property clearance certificate, and your statement of adjustments before you sign. We will keep it friendly, thorough and Melbourne practical.