Victorian Property Tax Reform

The new Victorian Commercial and Industrial Property Tax (CIPT) will impact  property purchases after 1 July 2024. This is a significant change to transition away from stamp duty for commercial and industrial property. There are numerous complexities in the proposed legislation.

The Commercial and Industrial Property Tax Reform Bill 2024 was introduced into the Victorian Legislative Assembly on Wednesday 20 March. This follows the Victorian Government announcement of the final design details of the Commercial and Industrial Property Tax Reform in December 2023. The Government has asked for written submissions or suggested adjustments to the legislation by 3 April.

The CIPT will be an annual property tax with the Bill providing for the transition of qualifying land to the commercial and industrial property tax (CIPT) scheme.

CIPT key points

• The first purchase of a 50% or more interest in a property (directly or indirectly) after 1 July 2024 will be liable to stamp duty (either upfront or via a Government facilitated transitional loan over 10 years).
• Certain subsequent transactions will not be subject to duty under the Duties Act as long as the property remains qualifying land.
• The land will become subject to an annual CIPT after the expiration of 10 years from the land entering into the scheme. The rate of CIPT will be 1% of the site value of the land or 0.5% of the value of BTR land for qualifying build to rent schemes.
• Interestingly, the first purchaser of a 50% or more interest in a property after 1 July 2024 will be subject to both duty and the VCIP after 10 years (so effectively they will suffer double tax).
• The CIPT will not apply to transactions that occur pursuant to an agreement or arrangement entered into prior to 1 July 2024.

What type of properties and land will this apply to?

The reform will apply to Victorian qualifying commercial or industrial use land that fall within the below ranges of the Australian Valuation Property Classification codes (AVCC):

• 200–499, which relate to commercial, industrial and extractive industry uses
•  600–699, which relate to infrastructure and utilities uses or
• the land has been allocated more than one AVPCC in the latest valuation not all of which are in the above ranges, and the land is used solely or primarily for a use described in an AVPCC in the above ranges. Therefore, mixed use properties will be subject to the CIPT where the sole or primary use of the property is one of the above.

Student accommodation

Land will have a qualifying use if the land is solely or primarily used for eligible student accommodation which is defined to mean residential premises that are:

• designed for occupation by students of a higher education provider (higher education provider is defined later in this clause) and
• occupied or available for occupation by students of a higher education provider; and
• commercial residential premises within the meaning of section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999.

Entry into the Scheme

Land with a qualifying use enters the scheme on the occurrence of:

• certain dutiable transfers or relevant acquisitions under the Duties Act 2000 in respect of that land and
• certain subdivisions and consolidation involving land already in the scheme.

Generally, a dutiable or landholder transaction brings land into the scheme if the transaction is not fully exempt from land transfer duty or landholder duty, and the transaction relates to an interest in land that amounts to a qualifying interest, being an interest of at least 50% in the land. 

Aggregation

There are aggregation rules that apply in determining if the 50% threshold has been met. Interests acquired with associated persons and acquisition of interests which occur with a 3-year period will be aggerated. Examples are provided in the Bill.

Who pays CIPT?

The owner of taxable land is liable to pay CIPT on the land.

The owner of CIPT taxable land is the same as the owner of the land for the purposes of the Land Tax Act 2005, however, the provisions deeming the holders of beneficial interests in certain trusts to be owners of land for the purposes of imposing land tax surcharges relating to trusts, are not applicable to CIPT.

Rate of CIPT

The rate of CIPT will be:

• for land other than BTR land: 1% of the taxable value of the land
• for BTR land: 0·5% of the taxable value of the land.

The taxable value of CIPT taxable land or part of CIPT taxable land is the same as the taxable value of the land or part under the Land Tax Act 2005. This is usually the site value contained in a valuation of land undertaken by the Valuer-General under the Valuation of Land Act 1960.

Exemptions from transfer and landholder duty on subsequent sales

There will be exemptions from transfer duty and landholder duty for certain transactions in relation to land that has entered the CIPT scheme.

Acquisitions of 100% interest in land

If the tax reform scheme land has entered the CIPT scheme through a transaction involving a 100% interest, no further duty is payable on a subsequent transaction.

Acquisitions of less than 100% interest in land

Where an interest of over 50% is acquired (but less than 100%), a subsequent transaction which relates to a different interest in the land may be subject to duty for a 3 year period or until full duty has been assessed on the interest (whichever occurs sooner).

The Bill includes as an example:

Person A acquires a 50% interest in a landholder under a relevant acquisition which occurs on 1 September 2025. The landholder holds a 100% interest in land. This relevant acquisition amounts to an interest of 50% in the land which is a qualifying interest and the qualifying landholder transaction is an entry transaction. Person B holds the remaining 50% interest in the landholder. On 1 January 2026, Person C acquires a 100% interest in the landholder from Person A and Person B. The value of the land holding of the landholder is to be excluded from the calculation of duty to the extent that the interest acquired by Person C is the same, or substantially the same, as the entry interest for the land (50%). The value of 50% of the land is included for the purposes of assessing duty on the relevant acquisition made by Person C.

Change in use

Where there is a change of use of land to a non-qualifying use (such as a rezoning to a residential use) after an exempt transaction, duty becomes payable on that transaction by the transferee.

Duty is assessed on the previous transaction based on the dutiable value of the land at the time of that transaction, not at the time of the change of use.

The amount of duty is to be reduced by 10% for each calendar year that has elapsed since the date of the transaction that is being assessed for duty. Note this is not necessarily the entry date of the land to the CIPT scheme.

Exclusions from the CIPT

As noted above, only commercial and industrial land (as well as student accommodation) is captured by the CIPT. Properties primarily used for residential, primary production, community services, sport, or heritage and culture purposes will not be captured.

The following transactions will also be excluded and will remain subject to duty regardless of whether the land has entered the CIPT transition:

• grant or transfer of leases
• economic entitlements.

Furthermore, transactions eligible for corporate reconstruction and corporate consolidation exemptions or concessions will not trigger entry into the CIPT regime.

Also as noted above, dutiable transactions and landholder acquisitions which are eligible for an exemption will not result in entry into the CIPT transition.

Our observations

• It is clear that there will be a number of complexities in the transition to the new CIPT regime.
• Some transactions, such as the grant of a dutiable lease or an economic entitlement in relation to land that has entered the tax reform scheme will remain subject to duty.
• Some dutiable transactions will not result in qualifying land becoming tax reform scheme land such as an acquisition of a direct interest in land of less than 50% or a landholder transaction involving an interest of less than 50%. Unless aggregated with other transactions to reach the 50% threshold, the land will not enter the scheme. The overlay between the landholder regime and the CIPT regime is complex and require further consideration by the Government.
• If transacted multiple times, the same minority interest may incur multiple amounts of transfer or landholder duty before the land enters the scheme (e.g. a 20% interest in a landholding unit trust that is transferred multiple times may incur duty each time it is transferred but the land will not enter the scheme even though the total duty payable may be equal to or more than the duty payable on a 50% direct interest).
• The application of the aggregation rules are complex but appear to not apply to aggregate interests acquired directly in land with interests acquired in a landholder that holds that same interest in the land.

How SW can help

This is a significant change in the application of duty to commercial and industrial property. For advice on how this will impact acquisitions in your pipeline or for assistance in modelling the tax payable on proposed acquisitions, reach out to your SW contact or one of the key contacts below.

Key contacts

Robert Parker