The session will cover the following topics:

• should you enter into agreements before or after 1 July 2024
• details on how the new CIPT regime will work
• impact on direct and indirect property acquisitions
• what exemptions apply
• the interaction between the CIPT and stamp duty (including landholder duty, lease duty and economic entitlements)
• impact on current projects
• who are the Winners and losers

Event details

Date

Wednesday 17 April 2024

Location

Online or in person at the SW Melbourne office, Level 10, 530 Collins Street, Melbourne

Time

12.30pm – 1:30pm (AEDT)

SW Speakers

Abi Chellapen
Director
SW

Stephen O’ Flynn
Director
SW

Blake Rodgers
Associate Director
SW

Robert Parker
Consulting Director
SW

Contact us

If you have any queries or would like more information, please contact the Marketing team via marketing@sw-au.com.

The post Commercial and Industrial Property Tax Reform webinar appeared first on SW Accountants & Advisors.

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

The post Victorian Property Tax Reform appeared first on SW Accountants & Advisors.

First home buyers purchasing properties up to $1.5m as their principal residence will now be able to choose to pay an annual property tax instead of stamp duty. Announced in the 2022/23 NSW State Budget, this proposed reform gives first home buyers a choice of opting out of stamp duty and instead paying an annual property tax.

How does it work?

The property tax will only be payable by first home buyers who choose it. Unlike earlier consultation proposals, the property tax will not automatically apply to subsequent purchasers of a property unless they are a qualifying first home buyer who also elects to pay the property tax.

Existing stamp duty concessions for first home buyers are available for purchases of up to $800,000, and these concessions will continue. [It is not clear at this stage if the election affects any entitlement to the First home Owners Grant. The First Home Buyer Assistance Scheme which provided a full exemption for new homes up to $800,000 and a concession for new homes up to $1m ceased from 31 July 2021.]

Who is eligible?

• you must be an individual (not a company or trust)
• you must be over 18 years old
• you, or at least one person you’re buying with, must be an Australian citizen or permanent resident
• you or your spouse must not have previously owned or co-owned residential property in Australia or received a First Home Buyer Grant or duty concessions.
• the property must be worth less than or equal to $1.5m
• you must move into the property within 12 months of purchase and live in it continuously for at least 6 months

Additionally, the contract of purchase must be entered on or after the scheme commencement date:

• for a contract of purchase on or after 16 January 2023 an eligible purchaser may opt into the property tax and will not be required to pay stamp duty in order to complete their transaction.
• for a contract of purchase between the passage of the legislation and 15 January 2023, an eligible purchaser will be required to pay any applicable stamp duty within the usual required periods and from 16 January 2023, will be able to apply for and receive a refund of that duty.

Stamp duty or annual property tax?

Eligible purchasers can choose between:

• paying the usual amount of stamp duty based on the ‘dutiable value’ of the property (i.e. the value including any improvements) or
• paying an annual property tax based on the unimproved land value of the property.

Property tax rates

The property tax rates for 2022-23 will be:

• $400 plus 0.3% of land value for properties whose owners live in them
• $1,500 plus 1.1% of land value for investment properties.

These tax rates will be indexed each year. Unlike land tax, annual property tax assessments will be issued in respect of financial years and not calendar years.

What about principal residences?

Whilst the property is occupied as a principal residence it is likely to be exempt from land tax. However there was no announcement that the property would be exempt from land tax whilst subject to the annual property tax.

Once it ceases to be the principal residence, it is possible that both the annual property tax (at the 1.1% rate) plus an annual land tax could apply – for instance, where the owner decides to move interstate after 6 months occupation and then rent out the property.

It is assumed that there will be some process to adjust any election if the property Is not occupied for the continuous 6 months and retrospectively assess transfer duty.

For properties that are owned for less than a full financial year, a pro rata adjustment to the annual property tax will be made based on the number of days in the year the property is owned. There will therefore be no need to adjust for the annual property tax on the sale of the property.

Click here for more information about NSW considering signifcantly expanding the stamp duty regime.

How can SW help?

Please reach out to one of our tax and property experts below for assistance navigating the implications and opportunities of the property tax reform.

Contributor

Robert Parker

The post NSW property tax reform appeared first on SW Accountants & Advisors.