Last year, the 2023 Victorian State Government Budget was released, introducing changes to the land tax system to transition from stamp duty to an annual property tax on commercial and industrial properties.
These changes have been adopted and took effect on 1 July 2024. This article will provide you with a breakdown of the changes, and what you need to be aware of if you own or are looking to purchase commercial property.
Stamp Duty to Commercial and Industrial Property Tax
The land transfer duty (also known as stamp duty) system in Victoria has been overhauled by a new tax regime for commercial and industrial properties, known as “Commercial and Industrial Property Tax” (CIPT).
From 1 July 2024, commercial and industrial properties qualify for the CIPT regime if the following criteria is met:
- the property is sold/purchased, subdivided or consolidated;
- the transaction involves at least 50% interest in the land;
- there is a positive stamp duty liability (i.e. transactions with a nil duty assessment such as a deceased estate transfer, will not be included); and
- land that qualifies as commercial or industrial use at settlement.
What is classified as a Commercial or Industrial Property?
To know if a property is captured by the CIPT regime, the property must have a ‘qualifying use’ under the Australian Valuation Property Classification Code (AVPCC) that is commercial or industrial at the relevant time.
An AVPCC code can be found in the property’s rates notice. If a property has more than one AVPCC (i.e. mixed use land), the property will have a qualifying use if it used solely or primarily for one of the prescribed uses. It is crucial that this code is correct, and if it’s not, landowners should take steps to amend it immediately.
A Property Clearance Certificate can also be obtained to gather information on the property’s AVPCC number, whether there is any CIPT, whether the property is involved in the tax reform scheme, and whether the Commissioner has been notified of a change in qualifying use.
Transitional Period and Choice between Stamp Duty or CIPT
If a commercial/industrial property is contracted on or after 1 July 2024, a 10-year transition period will begin on and from settlement.
At settlement, purchasers will have one of two options to either:
- pay the property’s final stamp duty liability as an upfront lump sum; or
- finance stamp duty through a government-facilitated transition loan, allowing purchasers to make annual loan repayments over 10 years – equivalent to the property’s final upfront stamp duty liability plus interest.
Stamp duty will not be payable on future transactions of that property, even if it is sold multiple times within the 10-year transition period, provided the property continues to have a commercial or industrial use.
If the property is sold within the 10-year transition period and the initial purchaser opted for a transition loan, they will be obliged to make the remaining repayments prior to settlement of the sale.
CIPT will start 10 years after the initial transaction, regardless of whether the property has been transacted since. CIPT will be set at a flat 1% of that property’s unimproved land value. It will be separate from and in addition to the existing land tax system. Once this 10 year transition period has lapsed and as long as the property is classified as a commercial or industrial property, stamp duty will not be payable on any transaction.
Contact Us
If you own a commercial or industrial property or are a potential buyer and are unsure as to how these changes will affect you, please contact our experienced property and commercial team on (03) 9481 2000 or info@tauruslawyers.com.au.