Important Changes to Stamp Duty and Land Tax
By: Nasiya Goldberg, Senior Associate
In the State Budget 2023/24 presented by Tim Pallas MP, Treasurer of the State of Victoria, the COVID Debt Repayment Plan was introduced to “ensure we manage our finances responsibly, so we can keep investing in the health, education, cost of living relief, transport and infrastructure that matters to Victorians” and specifically to “address $31.5 billion of COVID debt over the next 10 years”. Tim Pallas introduced key tax measures to combat the impacts of global economic pressures including high inflation, rising interest rates, Russia’s invasion of Ukraine, and global supply chain disruptions and cited former Prime Minister of Australia, Ben Chiefly in saying “war costs do not end when fighting ceases”. This article will consider two major tax reforms introduced by the Budget which will affect the property industry and the broader public: the abolition of stamp duty and increases to land tax rates and charges.
Stamp Duty changes
Stamp duty (also known as land transfer duty) was previously payable on purchases of a range of residential, commercial and other categories of properties including first homes, investment properties, primary production land and holiday homes (subject to the applicable duty exemptions and concessions).
From 1 July 2024, stamp duty on commercial and industrial properties will be abolished and replaced with an annual property tax. The Treasurer explained the “landmark reform” as follows:
“We are proud to announce the intention to introduce a once in a generation reform that transitions away from stamp duty for commercial and industrial properties. This reform will encourage investment in Victorian business, support jobs, and improve productivity. It can provide the flexibility to help businesses establish and grow. The transition away from stamp duty for commercial and industrial properties will occur after the next sale, with the annual property tax applying 10 years after the sale. Importantly, this reform will not affect current owners of commercial and industrial properties, as the property will only be subject to the new arrangements once it transacts. It also won’t affect owners of residential property.”
In practice, this will mean that the ‘first purchaser’ of any commercial and industrial properties sold on or after 1 July 2024 can elect to either pay the duty liability upfront (as a lump sum) or as fixed instalments over 10 years together with an interest charge. The property tax will be 1% of the unimproved value of the property.
The finer details remain unclear at this stage, including whether the reforms will apply to dutiable acquisitions in landholding companies or trusts. The Government has indicated that it will engage with industry over the coming months to ensure the design of the reform supports property owners through the transition and to ensure smooth introduction of the reform from 1 July 2024.
Land Tax changes
Land tax is payable on Victorian land and is calculated on the site value of all taxable land owned by landowners, using site values prepared by the valuation authority for local councils (subject to the applicable exemptions).
The Victorian Budget 2023/24 introduces land tax reforms geared towards raising approximately $4.7 billion over four years to address repayment of the COVID debt. The Treasurer explained as follows:
“We will lower the land tax threshold and add a modest fixed charge, with larger landholdings also paying an extra 0.1 per cent of land value – that is zero point one per cent. Family homes are not affected. Business profits are up 24 per cent over the past three years compared with the previous three. Land values have increased 84 per cent in the past 10 years. We’ve structured the repayment plan in a way that’s reasonable and proportionate to those with an ability to pay.”
In practice, this will mean the tax-free threshold has been reduced from $300,000 to $50,000 for most taxpayers. In addition, a new ‘COVID-19 debt temporary surcharge’ will apply as follows:
- $500 fee for taxable landholdings between $50,000 and $100,000;
- $975 fee for taxable landholdings between $100,000 and $300,000;
- for taxable landholdings above $300,000, a $975 surcharge will apply and an increased rate of land tax by 0.10 per cent of the value of the landholdings; and
- for a trust over $250,000, a $975 fee will apply and an increased rate of land tax by 0.10 per cent of the value of the landholdings.
The above measures are predicted to capture an additional 360,000 new taxpayers who were previously been required to pay land tax. There will be no change to the existing land tax exemptions (principal places of residence, farmland, retirement homes and land owned by charities or religious institutions).
- The State Budget 2023/24 introduces tax reforms including changes to stamp duty and land tax, which will have major economic impacts on businesses and Victorians.
- You should seek advice now on managing the impacts of these reforms, especially prior to pursuing commercial property investments, developments and divestments. Our property team is well-placed to assist you.
Links to sources:
- 2023/24 State Budget Papers: https://www.budget.vic.gov.au/budget-papers
- Stamp duty calculator on the State Revenue Office of Victoria website: https://www.sro.vic.gov.au/calculators/land-transfer-calculator
- Land tax calculator on the State Revenue Office of Victoria website: https://www.sro.vic.gov.au/calculators/land-tax-calculator
The MST Property and Leasing team remain available to assist you with your property and leasing queries. Please contact Nasiya Goldberg, Senior Associate on (03) 8540 0727 or Evelyn Marcou, Principal on (03) 8540 0243.