Commercial and Property Tax Reform

Introduction

On 20 March 2024, the Victorian Government introduced a bill which, if passed, will create new legislation which transitions from stamp duty to an annual property tax for commercial and industrial properties in Victoria (Bill).

It is proposed that the new regime will commence on 1 July 2024.

Application of Bill

The Bill confirms that the new commercial and industrial property tax regime (Regime) will generally apply where:

1. a relevant contract of sale is entered on or after 1 July 2024;
2. the property, as at the settlement date, is classified as having an industrial or commercial use (Relevant Property);
3. the transaction relates to at least a 50% share of the Relevant Property; and
4. the transaction is not exempt from the payment of duty.

It is important to note that a transaction dated after 1 July 2024 will not automatically bring land into the Regime if the transaction occurs pursuant to an agreement or arrangement entered before 1 July 2024, such as an option agreement, term sheet, and/or right of refusal.

Where the Regime does apply, the first purchaser of a Relevant Property, on or after 1 July 2024, will be the first and last to pay stamp duty in respect of that property, provided the property remains a Relevant Property.

Commercial Industrial Property Tax (CIPT) will then become payable annually with the first CIPT year being 10 years after the first transaction. CIPT will apply at a flat rate of 1% of the unimproved vale of the land.

Payment of Final Stamp Duty Liability

The first purchaser of a Relevant Property on or after 1 July 2024 is liable to pay what will generally be the last stamp duty liability in respect of the property.

Eligible purchasers will have the option of either paying upfront or using a government-facilitated loan with 10 year repayment term (Transition Loan).

The Transition Loan eligibility criteria is yet to be determined; however it is expected that this facility will only be available to:

1. persons not caught by the definition of foreign entities; and
2. properties where the purchase price is less than $30 million.

Requirement of Sales of Land

The Bill seeks to prohibit adjustments on the amount of CIPT payable on Relevant Properties, similar to the prohibition on the recovery of land tax from a purchaser where the sale price is below the threshold amount.

There are likely to be requirements where section 32 Vendor Statements will require disclosure with respect to whether the land has entered the Regime, and if so the date of entry to the Regime.

Qualifying Commercial or Industrial Use

A property will have a qualifying commercial or industrial use if:

1. it is allocated an Australian Valuation Property Classification Code (AVPCC) by the Valuer-General that is in the following ranges: 200-299 (commercial), 300-399 (industrial), 400-499 (extractive industries) or 600-699 (infrastructure and utilities – industrial) (refer below for comments on ‘mixed-use’ properties); or
2. it is land that is used solely or primarily as ‘eligible student accommodation’, being ‘commercial residential premises’ (as that concept is defined for GST purposes) that is designed for occupation by students of a ‘higher education provider’ (within the meaning of the Higher Education Support Act 2003 (Cth)) and is occupied or available for occupation by students of a higher education provider.

Exclusions

The Regime will not apply to:

1. commercial or industrial properties purchased (or the subject of an agreement or arrangement to purchase entered into) before 1 July 2024;
2. properties primarily used for residential, primary production, community services, sport, or heritage or cultural purposes (based on the AVPCC code assigned to the property by the Valuer-General);
3. properties the subject of a post 30 June 2024 transaction that is exempt from transfer duty or landholder duty (or eligible for a corporate reconstruction concession or corporate consolidation concession) – importantly however, properties the subject of other duty concessions (e.g. in the context of the takeover of a listed landholder or in the context of a regional Victoria commercial and industrial duty concession claim) can still enter the CIPT regime in the event of a post 30 June 2024 transaction; or
4. properties that are the subject of certain non-standard transactions that can give rise to duty, e.g. the grant or transfer of a ‘dutiable lease’ or the grant or acquisition of an ‘economic entitlement’.

The Government has confirmed that existing exemptions and concessions from stamp duty will continue to apply to the first post 30 June 2024 transaction that occurs in respect of a property that is the subject of the new regime.

If you have any matters or clients that require advice in this regard, please do not hesitate to contact Elizabeth Linedale, Daniel McLean or Dennis Danaher on 1300 363 314.