Abolition of GAIC exemptions for public purpose and infrastructure land mean higher costs for growth area developers

The Victorian Government has broadened the application of the Growth Area Infrastructure Contribution (GAIC) applicable to land in the Urban Growth Zone (UGZ) by repealing the current exemption clauses under section 201RF(a) and (b) of the Planning and Environment Act 1987 (P&E Act) for lots created for a “utility installation” or “transport infrastructure or any other public purpose”. This means that under the new scheme, GAIC will now be payable on land provided for State infrastructure use such as major roads and road widening, passive and active open space and land for utilities, in line with State Government policy that GAIC is payable on all broad acre land, not just on the net developable area.

The legislative changes extinguish any disputes on whether the relevant subdivision must be “solely” for a public purpose to be exempt from GAIC as seen in the recent Frontlink case. In this case, the Supreme Court overturned the Victorian Civil and Administrative Tribunal’s earlier decision that a subdivision for arterial road widening together with a residential subdivision did not come within the exception to GAIC under section 201RF(b). While there may have been ways in which to respond to the Frontlink decision by structuring or staging public purpose subdivisions to fit within the exemptions, the legislative changes now put an end to any such means.

Partner Meg Lee and lawyer Linda Choi highlight the key features of the legislative changes.

What are the key changes?

• The changes to the GAIC are contained in the State Taxation Acts Further Amendment Act 2016 which received Royal Assent and came into operation on 15 November 2016. In summary the key feature of the Act as far as it relates to the GAIC provisions under the P&E Act are, that it:
• repeals the “utility installation” and “transport infrastructure or any other public purpose” exemption clauses under section 201RF(a) and (b) of the P&E Act, leaving only some minor exemptions;
• repeals the exemption in section 201TC(2) for compulsory acquisition of land by a public authority or Council;
• defines land set aside for State infrastructure as ‘public purpose land’ under section 201R;
• amends section 201S, making GAIC payable on a plan of subdivision creating a lot to house ‘public purpose land’; and
• inserts new section 201SPAA and 201SR(8) making GAIC payable on a lot within three months of issuance of statement of compliance if the sole purpose of the lot is for ‘public purpose land’. This therefore means it will no longer be possible to stage the payment on the public purpose portion of the land beyond the 3 month period, although the remainder may be staged; and

The exemption in section 201RF(ba) for the subdivision which is solely to provide a lot for a school or a proposed school remains.

Are there any transitional rules?

The previous exemption provisions continue to apply to any plans of subdivision that were submitted for certification under the Subdivision Act 1988 before 12 October 2016 (the date of the second reading of the State Taxation Acts Further Amendment Bill 2016 in Parliament) and to any statement of compliance that was issued on or before this date.

The exemptions will also apply to any plans of subdivision submitted for certification under the Subdivision Act 1988 on or after 12 October 2016 provided that the statement of compliance was issued before 15 November 2016, the date the amending Act received Royal Assent.

How will this impact developers and landowners in growth areas?

While one assumes that the changes are designed to increase the GAIC revenue and therefore potentially benefit the growth areas more broadly, such benefits are likely to be offset by the significant impact on development costs. For developers with public purpose land within their land-holdings, the changes will increase the land area on which GAIC is payable and thereby impacts development costs and in turn the final market price of new residential lots.

Importantly, the changes will also have the potential to impact on the timing for delivery of infrastructure in growth areas as developers will no longer have any incentives to excise public purpose land early in the development process as they are unable to defer the GAIC liability beyond 3 months.

These concerns have been echoed by industry. The Property Council of Australia has questioned the Government’s need for more GAIC funds and does not support the changes on the basis that “the industry has already paid $176,010,655.00 in contributions and only 4.3 per cent was spent last financial year”¹ . The Victorian Urban Development Institute of Australia expressed a similar sentiment and has questioned the fairness of and justification for the changes².

At a time when housing affordability continues to be high on the political agenda, this move to extract more taxes from the developers of residential estates is a move that is somewhat counter intuitive.

¹ https://www.propertycouncil.com.au/Web/Content/Media_Release/VIC/2016/Government_legislates_around_Frontlink.aspx?WebsiteKey=148a29fb-5ee5-48af-954b-a02c118dc5fd
² https://www.udiavic.com.au/News/Industry-News/GAIC-changes-mooted-in-State-Taxation-Amendment-Bi