Removal of "Contiguous Land" land tax exemption for Melbourne properties

Updated: Apr 5

Announced in the 2019-20 Victorian Budget, the State Taxation Acts Amendment Act 2019 has added requirements to the contiguous land tax exemption that have the effect of levying land tax on separately-titled land in metropolitan Melbourne. These changes became effective on 1 January 2020 and apply even to land that adjoins a principal place of residence.

Prior to 2020, landowners in metropolitan Melbourne were not required to pay land tax on those parcels of land they owned that adjoined or abutted their principal place of residence. The most common instances of this were adjoining parcels of land used as swimming pools, tennis courts and gardens. Changes introduced by the State Taxation Acts Amendment Act 2019 designed to curb and discourage ‘land banking’ (that is, the hoarding of property) have removed this exemption for properties in metropolitan Melbourne. The practical effect of this is that many homeowners will receive an adverse land tax assessment in respect of lots adjoining their home, even if they nominally form one property.


The relevant legislation is outlined at section 35 of the amending act:


land is also exempt land if—

(a) the land is owned by the owner of the PPR land; and

(b) the land is contiguous with the PPR land or separated from the PPR land only by a road or railway or other similar area across or around which movement is reasonably possible; and

(c) the land enhances the PPR land; and

(d) the land is used solely for the private benefit and enjoyment of the person who uses and occupies the PPR land and has been so used—

(i) since 1 July in the year preceding the tax year; or

(ii) if the owner or trustee became the owner of the land on or after 1 July in the year preceding the tax year, so used and occupied since a later date during that year; and

(e) the land does not contain a separate residence; and

(f) both the land and the PPR land are wholly in regional Victoria.

emphasis added


By establishing that a property must be wholly in regional Victoria to qualify as ‘exempt land’ (that is, land exempt from land tax by being adjoined to a principle place of residence) subsection (f) emerges as the crucial section that enables land tax to be levied on properties in Melbourne, while leaving those in regional Victoria exempt. This exemption previously applied irrespective of location within Victoria.


The Victorian Government has cited adjoining land use, such as “a backyard, garden, shedding, a swimming pool or a tennis court” as being examples of the intended targets of this legislation. For this reason, these amendments have been dubbed the ‘Tennis Court Tax’. Homeowners are most likely to find themselves subjected to increased land tax liability where they, or a previous owner, have purchased one lot as their principle place of residence and subsequently purchased a neighbouring property in order to increase the amenity of their initial residence, but have never had these lots consolidated into a single parcel.

Separate amendments continue to maintain exemptions for car parks and storage cages where those amenities are separately titled within the same owners corporation or strata subdivision. As noted above, the Act also specifically keeps the previous contiguous land exemptions in place for properties in regional Victoria.


If you own property to which these land tax amendments may apply, one solution is to apply to Land Use Victoria for a plan of consolidation. This consolidates the lots that comprise the property and merges them into a single title. The end result is that the entire property is once more covered by the principle place of residence exemption from land tax (assuming all other requirements for the principle place of residence exemption are met).

Eastern Bridge is experienced in property law and lodging plans of consolidation. Please contact our office if you are interested in pursuing a plan of consolidation following or in anticipation of an adverse land tax assessment.

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