New annual tax on commercial and industrial property from I July 2024 in Victoria
Overview
In the 2023–24 State Budget, the Victorian Government announced that land transfer duty (stamp duty) on commercial and industrial property will be abolished and replaced with the Commercial and Industrial Property Tax (CIPT), which will apply annually based on unimproved land value.
A new commercial and industrial property (C&I Property) tax of 1% p.a. applies in Victoria from 1 July 2024. This new tax will be levied on the land’s unimproved value and is payable in addition to any land tax. Duty on the purchase of C&I Property will be phased out.
Duty regime before 1 July 2024
When purchasing real estate in Victoria prior to 1 July 2024 (including residential and C&I Property) a purchaser is required to pay land transfer duty. This is a substantial up-front cost to the purchase of real estate in Victoria (typically up to 6% of the purchase price). Land transfer duty is commonly referred to as stamp duty and we refer to the term ‘duty’ below, for simplicity.
Transitioning from duty to the new tax
C&I Property that is sold or transferred from 1 July 2024 will trigger a 10-year transition period. The new regime phases out the up-front cost of duty and, instead the first time that C&I Property is sold or transferred on or after 1 July 2024, the purchaser will have the choice to either:
a.) pay duty as a lump sum up-front payment; or
b.) pay the value of the duty over a 10-year period with a government-facilitated loan (Vic Loan) plus interest.
Regardless of which option the purchaser chooses, the 10-year transition period will begin from the date of the first transaction (eg, sale or transfer) on or after 1 July 2024.
Annual property tax after the 10-year transition period
After the 10-year transition period, the new tax will be payable by the owner of the property. This tax is calculated at 1% p.a. of the unimproved value of the land and will be in addition to any land tax. Like land tax, the new tax will not be able to be passed on to retail tenants (as defined in the Retail Leases Act 2003 (Vic).