The Who, What, Where, When and Whys of the Growth Area Infrastructure Contribution

Posted on: 23 Aug, 2010 | Contacts: Ian Tuszynski, Peter Window

The Growth Areas Infrastructure Contribution (GAIC) is a new tax imposed by the Victorian Government on land development. GAIC is a one-off contribution designed to provide essential community infrastructure and to support development in Melbourne's newest suburbs. This new tax will have a substantial fiscal consequence on purchasers, landowners and developers with land on Melbourne's fringe. It is expected that the GAIC will contribute 15 per cent towards Victoria's infrastructure and services in growth areas.

WHY WAS GAIC INTRODUCED?

In 2005 and then again in 2006, the Victorian Government expanded the urban growth boundary (UGB) to enable land on Melbourne's fringe to be developed for urban use such as housing, industry and commerce.

On 2 December 2008, the Victoria Government announced that land brought within the UGB in 2005 and 2006 and future expansions to the UGB intended for urban development would be subject to GAIC to provide state infrastructure and to support the development of new suburbs on Melbourne's fringe.

The GAIC provisions came into effect on 1 July 2010 and will affect land brought within the UGB since 2005 (Contribution Area) if a trigger event has occurred on or after 2 December 2008.

Since its introduction, the Victorian Government has expanded the UGB, further resulting in more land potentially becoming subject to the new tax.

WHAT TRIGGERS GAIC?

Essentially, GAIC is levied in three circumstances:

if land is sold or transferred (a dutiable transaction occurs);
if land is subdivided (a statement of compliance is issued); or
if sizable building works are conducted on land (a building permit is applied for),

within Melbourne's Contribution Areas.

WHERE ARE THE GROWTH AREAS?

The Contribution Areas are contained within Melbourne's five growth areas, which include Casey-Cardinia, Melton-Caroline Springs, Hume, Whittlesea and Wyndham.

Land within the Contributions Areas is categorised into four different types:

Type A land, which is land that is brought within an UGB between 28 November 2005 and 31 December 2006 (inclusive) and is within an urban development area on or after 2 December 2008.
Type B-1 land is included in investigation areas 1 to 6 that is brought within a growth area, and UGB and an urban growth zone (UGZ) on or after 2 December 2008.
Type B-2 land is included in investigation area 7 that is brought within a growth area, and UGB and an UGZ on or after 19 May 2009.
Type C land is any land (that is not type A land, type B-1 land or type B-2) that is brought within a growth area and UGZ on or after 1 July 2010.

HOW MUCH GAIC IS PAYABLE?

For the 2010-2011 financial year, the GAIC rates are:

$80,000 per hectare for type A land; and
$95,000 per hectare for types B-1 land, B-2 land and C land.

The above rates will be indexed annually by reference to the Consumer Price Index (CPI).

WHO PAYS GAIC?

If land is transferred or sold, the transferee or purchaser is liable to pay the GAIC. Whereas if land is subdivided or sizable building works occur on the land, the landowner is liable to pay GAIC.

WHEN IS GAIC PAYABLE?

GAIC is payable at different times depending on the GAIC trigger event:

if land is sold or transferred, GAIC must be paid three months after the settlement of the land;
if land is subdivided, GAIC must be paid three months after the issuance of a statement of compliance for the subdivision; or
if a building permit for sizable building works is applied for, GAIC must be paid before the building permit is issued.

Deferral and staging of GAIC payments

If type A land is sold or transferred after 2 December 2008 but before 1 July 2010, the purchaser is liable to pay the GAIC by 31 September 2010 unless the purchaser has elected to defer the payment. A purchaser of type A land can defer 100 per cent of the GAIC liability.

A purchaser of all other land sold or transferred which gives rise to a GAIC liability must pay 30 per cent of the GAIC within three months of settlement. The remaining 70 per cent can be deferred.

Deferred GAIC is paid when the land is subsequently subdivided or when a building permit is applied for, unless an application is made for the GAIC liability to be paid in stages (see below).

If a subsequent purchaser acquires land that has had part of the GAIC liability deferred, the subsequent purchaser is liable to pay the deferred liability.

Deferred GAIC will be indexed by reference to CPI up until the land becomes part of a precinct structure plan; after that, deferred GAIC will be subject to interest at the Treasury Corporation 10 year bond rate.

If land is subdivided or sizable building works occur on the land, the landowner may apply to the Minister of Planning for the GAIC liability to be paid in stages. Interest is payable on any GAIC paid in stages.

EXEMPTIONS FROM GAIC

There are a number of circumstances where GAIC is not payable.

If type A land or type B-1 land is sold or on or before 2 December 2008 or if type B-2 land is sold on or before 19 May 2009, GAIC will not be payable. However subsequent sales, transfers, subdivisions or applications for a building permit may trigger GAIC.

GAIC is also not payable in any circumstance if the land is 0.41 hectares (1 acre) or less.

GAIC is not triggered if land is sold with an area between:

0.41 and 5 hectares; or
0.41 and 10 hectares with a habitable dwelling on it before 2 December 2008,

but will be triggered if the land is subsequently subdivided or developed.

GAIC is not triggered if land is sold subject to a restrictive covenant or a section 173 agreement which prohibits subdivision of that land or which limits the use of that land to residential purposes having a single dwelling.

An application for a building permit for a new single dwelling, the demolition of a building, repair of existing building or building works less than the threshold amount (currently set at $1 million for the 2010/11 financial year) will not trigger GAIC.

CONCLUSION

Purchasers and developers of land in Melbourne's growth areas need to be aware that dealing with land on Melbourne's fringe may incur the new tax. Importantly, if land in a Contribution Area has been purchased after the relevant dates (ie 2 December 2008 for type A land and type B-1 land or 19 May 2009 for B-2 land) and before 1 July 2010, the purchaser must pay or elect to defer payment of its GAIC liability before 31 September 2010. If the GAIC liability is not paid when it is due, interest and a penalty tax will be imposed.