When purchasing a commercial or industrial property in Victoria, we are used to the fact that the transaction will be subject to stamp duty unless a relevant exemption applies. However, this system is undergoing a major reform (“the Reform”) by way of the new Commercial and Industrial Property Tax (“the Tax”).
The Victorian Government tells us:
“To enable businesses to invest, grow and expand, the Victorian Government is delivering a landmark reform that transitions away from stamp duty for commercial and industrial properties, replacing it with a more efficient Commercial and Industrial Property Tax”; and
“… the Victoria Government is progressively abolishing stamp duty on commercial and industrial property and replacing it with a more efficient tax based on the unimproved land value…”
Of course, as to whether any new tax will enable business to invest and expand and what the definition of “a more efficient tax” is, we will leave these issues to you to decide.
However, some key points of the Tax include:
The Tax applies to properties contracted on or after 1 July 2024. These properties are captured within the Reform.
The Reform does not apply to residential, primary production, community service, sport or heritage and cultural purposes.
Properties contracted before 1 July 2024 will not be impacted and remain outside the Reform.
When a property is contracted after 1 July 2024, the property enters the Reform and a 10-year transition period will commence from settlement.
Entry into the Reform applies:
only if a 50% or more interest in the property is transferred;
equally where shares in a company or interests in a trust are transferred (as opposed to a sale of the real estate);
to lots created by subdivision of a property already within the Reform;
a lot that is consolidated provided 50% or more of the land in the consolidation was within the Reform;
to foreign owners; and
to student accommodation (but excluding university colleges).
At settlement of the transaction that triggers entry into the Reform, the purchaser may pay the (final) stamp duty on that property by either:
an upfront lump sum; or
through a government facilitated transaction loan which is available subject to certain limitations (‘the Loan”).
The Loan will have to be repaid if the property is sold before the Loan is repaid or if the use of the property changes away from commercial or industrial.
The Loan will be noted on title and will be protected by a first ranking statutory charge.
The Tax is payable from 10 years after the property enters the Reform. That is, at the end of the transition period.
The (annual) Tax is set at 1% of the unimproved value of the property.
Where a property has mixed uses, the sole or primary use test will determine whether the Tax applies.
The Tax, once payable, will be apportioned between commercial/industrial uses on the one hand and non-commercial/industrial uses on the other.
The Tax is not a substitute for Land Tax which will continue.
Once sold (after 1 July 2024 and the property enters the Reform), stamp duty will not be payable on future transactions (even if the property is sold multiple times) provided it remains commercial or industrial.
The Tax cannot be passed on to tenants under the Retail Leases Act (in the same manner as passing on Land Tax is prohibited).
Super funds are not exempt.
A transfer from a trustee of a trust to a beneficiary is exempt from duty, the property will be exempt from the Reform.
At Andrews Crosthwaite we understand that stress and anxiety can sometimes be related to the settlement process in conveyancing transactions. We try to make your journey easy! Our firm endeavours to provide guidance and comprehensive communication with our clients during the entire settlement process.
If you have a conveyancing matter you’d like us to assist you with, please contact us on 03 9450 9400
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