Key VIC changes introduced by the State Taxation Further Amendment Bill 2024
10/12/2024
The State Taxation Further Amendment Bill 2024 introduces key reforms for Victoria, including expanded CIPT duty exemptions, strengthened FPAD and AOS provisions, a land tax exemption for charitable housing providers, payroll tax updates, and other minor amendments.
The State Taxation Further Amendment Bill 2024 (the Bill) received Royal Assent on 3 December 2024.
The key changes proposed by the Bill include:
- further duty exemptions for land in the Commercial and Industrial Property Tax (CIPT) Scheme
- reinforcement of the existing Foreign Purchaser Additional Duty (FPAD) and Absentee Owner Surcharge (AOS) provisions and
- a new land tax exemption for charitable housing providers.
Other amendments to payroll tax and other minor exemptions have also been proposed. We have unpacked these major state taxation changes below.
Key changes explained
Further Commercial and Industrial Property Tax (CIPT) exemptions
The CIPT scheme was introduced to replace stamp duty for future transactions involving commercial and industrial properties that have entered and continue to qualify under the scheme (referred to as CIPT Land). For further details take a look at our webinar or article on CIPT.
Under the newly introduced framework, stamp duty is intended to be levied one last time when a property enters the CIPT scheme through an initial qualifying transaction (‘entry transaction’).
Despite inclusion into the CIPT scheme, certain subsequent transactions (‘non standard transactions’) involving dutiable leases, fixtures and economic entitlements remain subject to duty.
The Bill introduces changes to provide upfront exemptions and concessions for ‘non-standard transactions’ which are defined as transactions such as the grant, transfer, or surrender of dutiable leases, or the acquisition of fixtures or economic entitlements related to CIPT Land.
Non-standard transaction exemptions
These ‘non-standard transactions’ will be exempt from duty if one of the following applies:
- at least three years have passed since the land entered the CIPT scheme, and the non-standard transaction agreement is made after this period or
- the entry transaction involved a 100% interest in the land, or the total interests transacted in the land amount to 100% and
- the value of the CIPT land when it entered the CIPT regime was not reduced by a lease over the land, economic entitlement in relation to the land and did not exclude the value of an interest in fixtures on the land.
The above upfront exemption is aimed at circumstances where appropriate duty has previously been paid as part of the land entering the CIPT.
Where full duty has not been paid, the Commissioner may exercise discretion to waive or reduce the duty payable on these transactions. The Commissioner considers:
- the proportion of the initial interest acquired during the entry transaction and any additional interests subsequently acquired in the land
- the degree to which the land’s value was diminished by other interests, such as leases, economic entitlements, or excluded fixtures, at the time the entry transaction was assessed for duty
- the time interval between specific transactions related to the land
- any other factors the Commissioner deems relevant.
Foreign Purchaser Additional Duty (FPAD) & Absentee Owner Surcharge (AOS) provisions
Under the Duties Act 2000 (Vic), FPAD applies extra taxes on the acquisition of residential land by foreign purchasers in Victoria. Similarly, under the Land Tax Act 2005 (Vic), the AOS imposes additional taxes on foreign owners holding land in Victoria.
The amendments are intended to address the risk that the existing provisions were invalid by reason of an inconsistency with theInternational Tax Agreements Act 1953 (Cth), which gives force to certain non-discrimination clauses in international tax treaties.
The Commonwealth Act was amended to explicitly state that state taxation laws override these international tax agreements in cases where these is an inconsistency. Despite this clarification, there remains a risk that courts could find the historical application of the FPAD and AOS invalid if they are deemed inconsistent with the Commonwealth law as it was at the time the alleged tax liabilities were incurred.
The new proposed provisions outline that if an FPAD or AOS liability is found to be invalid because of an inconsistency, a new replacement tax will be imposed which will mirror the original liability.
The proposed amendments will have the following practical effect, notwithstanding that the amendments will not apply if the liabilities are determined to be valid:
- if the FPAD or AOS liability between 1 January 2018 and 8 April 2024 are deemed invalid, the taxpayer will still owe the same equivalent amount under the new provisions and
- in circumstances where the taxpayer has paid the FPAD or AOS liability, the previous payment of the invalid tax will satisfy their liability under the replacement tax.
These proposed amendments ensure that the Victorian taxes are imposed as they were intended.
Exemption for charitable housing providers
The proposed changes under the Bill create a new exemption under section 78D of the Land Tax Act 2005 (Vic) (Housing provided for the relief of poverty) which applies to land owned, managed, or controlled by a charitable institution that is occupied, or available for occupation, by residents solely in connection with the institution’s charitable purpose of relieving poverty.
The new exemption is also available to vacant land owned by a charitable institution and declared to be held for such future use and occupation. However, the caveat to this is that the Commissioner must be satisfied that the land will be exempt land within 2 years, or a period longer as approved by the Commissioner.
As is the case with other land tax exemptions, the exemption may apply on a partial basis if the Commissioner is satisfied that only a part of land is land that meets the exemption requirements. Land tax will remain assessable on the part of the land that is not exempt.
How SW can help
Contact one of our state taxes experts to discuss how the proposed amendments may impact you.
