News & Insights

In their recent State Budget, the Victorian Government has introduced significant changes to the land tax system in response to the debt caused by the COVID-19. In the same budget, there has also been reforms to stamp duty for transfers of commercial properties.

Changes to land tax

The Government has introduced a COVID Debt Repayment Plan in an attempt to increase revenue and claw back the debt created by the pandemic which sits at $31.5 billion. This plan has two core elements – increasing land tax and increasing payroll tax for businesses with annual payroll over $10 million. This article will focus on the increasing land tax and the effect that this will have on land owners.

The land tax changes announced by the Government will come into effect from 1 January 2024 and are as follows.

• The tax-free threshold for general land tax will decrease from $300,000 to $50,000 resulting in a greater number of land owners paying land tax (note: primary place of residence will remain exempt).
• There will be an additional fixed charge of $500 added to land tax for those who have taxable landholdings between $50,000 and $100,000.
• There will be an additional fixed charge of $975 added to land tax for those who have taxable landholdings between $100,000 and $300,000.
• For both general and trust taxpayers with holdings above $300,000 and $250,000 respectively, they will receive an additional fixed charge of $975 in addition to an increased rate of 0.01 per cent for land tax.

These changes are expected to repay $4.7 billion of the $31.5 billion amassed by the Government throughout the pandemic. The Government is also estimating that these changes will remain in place until 30 June 2033.

It is important to note that land tax exemptions will remain in place for land that is your primary place of residence, or if that land is used for primary production purposes (i.e. farming) and if the land is used by charities and residential care facilities.

Stamp duty abolished for commercial and industrial properties

With the aim of being more efficient, the Government has also announced that stamp duty will be abolished for commercial and industrial properties. What replaces stamp duty is an annual property tax that will be payable from 10 years after a property is purchased. This new property tax will be set at a flat rate of 1 per cent of the property’s unimproved land value. The Government’s rationale for this change is that it will free up capital that businesses can then re-invest in expanding their operations and employ more workers.

When the reform comes into effect after 1 July 2024, the first purchaser of a commercial or industrial property will be able to choose to either pay the property’s final stamp duty liability as an upfront payment. Or, alternatively, the purchaser could decide to transition to the new annual payment by opting to pay fixed instalments over 10 years equal to stamp duty and interest with a government-facilitated transition loan.

Changes loom for Victoria’s property sector

We note that these announced changes must be approved by the Victorian Parliament before they can be implemented and, as such, are subject to change. If you are a landowner, landlord, tenant or prospective purchaser of commercial or industrial property and are unsure how these reforms will affect your sale/purchase, please get in touch with our Property law team.