Following Government announcements in the Victorian Budget 2023-24 a Bill is currently before Parliament which will introduce tax reform for commercial and industrial properties in Victoria.
Under the reform stamp duty will be abolished and replaced with an annual Commercial and Industrial Property Tax (CIPT). This reform is expected to commence on 1 July 2024 and will apply to commercial and industrial properties contracted on or after this date (in this context this will mean the contract is to be signed and settled after 1 July 2024).
Following the payment of this “final stamp duty” amount by that initial purchaser the property will transition to the new scheme.
As part of the reform the “final stamp duty” payment on transactions to be completed after 1 July 2024 can continue to be paid as a up-front lump sum payment (as it currently) or a Government facilitated “transition loan” can be accessed by eligible purchasers to repay the stamp duty by annual payments over 10 years.
Allowing for a 10 year transition period after the payment of “final stamp duty” the commercial or industrial property will become part of the new scheme and be liable for an annual property tax at the rate of 1% of the unimproved value of the land.
The annual property tax will be payable in addition to any land tax payable on the land and the existing exemptions that apply under the land tax regime will continue to apply under the annual property tax regime.
All land within the Australian Valuation Property Classification Code (AVPCC) 200-399 (Commercial and Industrial), 400-499 (Extractive Industries) and 600-699 (Infrastructure and utilities) will have a qualifying use and be subject to the scheme upon entry. The AVPCC code for your land use may be found on your Council rate notice.
Certain properties will not form part of the reform scheme including properties purchased before 1 July 2024, properties used for residential purposes, certain commercial residential asset classes and properties used for primary production. *This list is not exhaustive and given for illustrative purposes.
Transactions that are exempt from stamp duty will also not form part of the reform scheme including deceased estates, charitable institutions and transfers between spouses. *This list is not exhaustive and given for illustrative purposes.
The reform process can be visualized in the following graphic.
We are monitoring the progress of the Bill and will provide further updates in due course.
If you have not already done so, we recommend that you start to consider that impact the new regime may have on valuations and rental return for your existing portfolio (and those of potential target properties).
It is worth noting that the imposition of the annual CIPT may effectively be delayed if intending purchasers enter into an agreement or arrangement to acquire land with a qualifying commercial or industrial use before 1 July 2024.
Please contact us online or call us on 03 5976 6500 for advice if you have any questions regarding how these changes might impact you, your business, or your investments.