Cladding rectification levy FAQs

In July 2019, the State Government announced its intention to address combustible cladding through a program of grants to fund rectification works for high-risk buildings. The proposed funding arrangements for the grants include the introduction of changes to the building permit levy to raise $300 million (representing half of the $600 million funding announced) over the next five years.

Amendments to the Building Act 1993 in the Building Amendment (Cladding Rectification) Act 2019 will provide for the building permit levy to include an additional cladding levy component. This component is known as the cladding rectification levy. These amendments will commence on 1 January 2020.

To estimate the cladding rectification levy payable, use our Building permit levy calculator.

Provisions that require building surveyors to calculate the amount of levy payable when applying for a building permit number have been repealed, removing some of the regulatory burden on relevant building surveyors (RBS). It is important to note that an RBS will still be required to provide the VBA with information relating to prescribed events each month.

To find out more information on the legislative changes underpinning the additional levy, view the Building Amendment (Cladding Rectification) Act 2019 on the Victorian Legislation and Parliamentary Documents website.

This page was last updated on 23 March 2020.

Application of the cladding rectification levy

The cladding rectification levy applies to buildings:

  • with a classification of 2 to 8 under the National Construction Code (NCC)
  • that are not located in ‘regional Victoria’ as defined in section 18(8) of the First Home Owner Grant Act 2000; and
  • that have a cost of works or cost of whole of building works of $800,000 or more.

Note: The cladding rectification levy is payable in addition to the current building permit levy.

As provided by Building Code of Australia (BCA) – A6.11, a building (or part of a building) may be designed, constructed or adapted to multiple purposes and have more than one classification.

The cladding rectification levy must be paid in relation to the cost of building work for which a building permit is required in respect of a multiple-purpose building that is a combination of any of the NCC classes 2 to 8 and NCC class 1, 9 or 10 that does not attract cladding rectification levy.

An exemption from the cladding rectification levy will be available in relation to certain types of social housing.

No cladding rectification levy is payable if a building is not a multiple-purpose building and that building is only NCC class 1, 9 or 10.

Building works on Commonwealth Crown land retain the current exemption from any building permit levy, including the new cladding rectification levy.

‘Regional Victoria’ is defined by reference to the First Home Owner Grant Act 2000, which lists regional municipal councils and Alpine resorts included within the definition.

Buildings with a classification of 2 to 8 under the NCC are subject to the cladding rectification levy. Broadly, these classes are:

  • Class 2 – apartments
  • Class 3 – hotels
  • Class 4 – dwellings attached to commercial buildings
  • Class 5 – offices
  • Class 6 – shops
  • Class 7 – car parks and warehouses
  • Class 8 – laboratories and factories

If the building work involves multiple NCC class types, the RBS must determine and enter into BAMS information for the primary NCC code for that building permit.

For applicable buildings with a cost of works (single-stage project) or cost of whole of building works (multiple stages of works) of $800,000 or more, the following rates of cladding rectification levy are payable.

Cost of works / Cost of whole of building works Cladding rectification levy rate
Between $800,000 and $1 million 0.128 cents in the dollar
Between $1 million and $1.5 million 0.256 cents in the dollar
$1.5 million or more 0.82 cents in the dollar

If a staged permit is required for works that are solely for a NCC class 2 to 8 building or for a multiple-purpose building that has at least one part that is a NCC class 2 to 8, the additional cladding rectification levy is calculated on the entirety of the building work.

An online levy calculator is available to provide industry with an estimate of the total building permit levy payable.

The cladding rectification levy is calculated on the entire cost of works.

Certain social housing projects will be exempt from the cladding rectification component of the building permit levy. The exemption will be limited to certain social housing projects funded by the Director of Housing. Regulations will be introduced in early 2020 detailing how this exemption is intended to apply.

Building works on Commonwealth Crown land retain the current exemption from any building permit levy, including the new cladding rectification levy.

Applications for a building permit that are 'accepted' by an RBS before the commencement date will not be subject to the new cladding rectification levy.

An application should be deemed 'accepted' when it contains all information needed by an RBS to:

  • apply to the VBA for a building permit number (BPN)
  • estimate the cost of works; and
  • calculate the total levy due (before applying for a BPN).

The VBA considers that a RBS does not 'accept' an application for a building permit until all required information has been provided and an estimated cost of works is settled.

The date in the BAMS 'Building Permit Application Date' field is the relevant date for the purposes of when an application is 'accepted'.

The legislative amendments require the Minister for Planning to ensure that a review of the cladding rectification levy is undertaken no later than four years after commencement. The purpose of the review is to determine whether there is an ongoing need for that additional levy to continue funding cladding rectification works.

Estimation of cost of works and levy

Amendments to the Building Act 1993 repeal section 18AA(2)(c) and insert section 205I so that an RBS will no longer be required to calculate the levy payable.

The RBS retains responsibility for estimating the cost of the building work for which an application is sought (including the cost of labour and materials). However, in relation to staged permits, the RBS must also provide an estimate of the cost of whole of building work when each BPN is applied for.

On commencement of the new provisions, responsibility for calculating the levy payable will transfer to the VBA, as will responsibility for communicating this to the applicant.

The reassessment powers previously introduced on 1 July 2019 will provide the process for the recovery of shortfall levy where final cost of works is more than the estimated cost of works.

There is no change to the RBS' duty to notify the applicant for a building permit of the estimated cost of works (section 205I of the Act).

RBS notification to the owner should take place on application for a BPN. The amount reported should match the amount entered into BAMS.

The VBA will calculate the amount of building permit levy payable in relation to the cost of each stage of building work on application for a building permit for that stage.

This means the VBA will use the RBS' estimate of the cost of works for a particular stage at the time of application for a building permit.

Amendments to the Building Act 1993 introduce a legislated refund power as part of the reassessment process (sections 205L(1A)(b) or (c), and section 205LBA). These refunds are limited to cladding rectification levy paid on staged permits where the cost of works is at least $15,625 below the estimated cost of works and either:

  • the estimate under section 205I(2) or (3) of the cost of whole of building work was incorrect; or
  • the VBA considers the information provided in the application for the building permit was incorrect or misleading.

This new refund power can only be exercised after a building permit is issued. In relation to the timing of reassessments resulting in a refund being payable, the VBA has discretion (under section 205L(1A) of the Act) to reassess the levy payable after the building permit for the final stage has been issued.

The VBA will continue processing administrative refund requests for building permit levy paid before a building permit has been issued. A RBS may request an administrative refund:

  • after a BPN has been created in situations where a building practitioner is no longer registered, or an owner/applicant no longer wants to build or proceed with a build; or
  • after being issued with a BPN, where an administrative error has occurred when entering the levy into BAMS (e.g. $100,000 instead of $10,000) and too much levy has been paid.

The VBA will not provide administrative refunds of building permit levy after a building permit has been issued.

Reassessment of levy

New subdivisions 4A and 4B – inserted in Division 2 of Part 12 of the Building Act 1993 – empower the VBA to reassess building permit levy for building permits issued on or after 1 July 2019.

The VBA may reassess building permit levy after a building permit is issued and within five years of completion of work, where:

  • variation to the building work has resulted in an increased cost of building work
  • the estimated cost of works by the RBS was incorrect; or
  • the VBA considers information provided in the application for a building permit was incorrect or misleading.

Under section 205LD of the Building Act 1993, a person who is given a notice to pay additional levy under section 205LB(1)(a) must pay to the VBA the additional amount of building permit levy and any penalty levy assigned within 14 days of the notice being given to the responsible person.

Revised final cost of works

Amendments to section 205KA of the Building Act 1993 remove the requirement to report on increased final costs of building work for staged building permits. The RBS will instead be required to report any variations to the cost of works each time a BPN application is made (see changes to section 205I).

The reporting requirement in section 205KA only applies to building permits issued on or after 1 July 2019.

The reporting duty remains unchanged in relation to non-staged building permits. Owners are still responsible for informing the VBA of the revised cost of works.

Owners/applicants should complete the relevant cost of works notification form, which is available here, and submit it to the VBA. (Download the form to your computer before filling it in.)

The cladding rectification levy amendments have introduced refunds as part of the reassessment power for staged permits, where the whole of cost of works is at least $15,625 more than the initial estimated cost of works.

Otherwise, there is no capacity for the VBA to reassess levy for over-estimated costs of works. However, a reimbursement of the building permit levy may be provided in circumstances where the levy was paid prior to the issue of a building permit and the application is withdrawn prior to the issue of the permit.

Note: The VBA will not reimburse building permit levy if:

  • building work does not proceed
  • building work is partially completed
  • a building permit lapses; or
  • a building permit is cancelled.

Payment is due 14 days after notice is given.

Unauthorised building work and other matters

Yes – the cladding rectification levy will also be payable when the VBA exercises its powers to assess levy for unauthorised building work that would otherwise be subject to the cladding rectification levy.

The VBA's decision on the amount of cladding rectification levy refundable under the new refund power will be reviewable at VCAT.

Amendments to the Building Act 1993 include a legislated transfer of the rights of building owners who have received financial assistance from Cladding Safety Victoria to pay for cladding rectification works.

Subrogation is the process by which one party (in this case, the State of Victoria) is substituted for another, so that it may enforce the other's rights against a third party.

These amendments will allow the State Government to take legal action to recover costs of cladding rectification from building practitioners or others responsible for the installation of combustible cladding in place of owners.