The Commercial and Industrial Property Tax Reform in Victoria seeks to replace the current stamp duty system for commercial and industrial property transactions. Stamp duty, considered a barrier to business investments, will be progressively eliminated for properties settled from July 1 2024. The reform, endorsed by various inquiries, including the Henry Tax Review and the Productivity Commission, aims to boost business growth by removing upfront costs for around 265,000 commercial and industrial properties.

When will the Commercial and Industrial Property Tax Reform apply

The reform will apply when a property has:

• a property contract of sale is entered into on or after 1 July 2024
• 50 per cent or more of the property ownership is transferred
• you are liable for paying the duty (i.e. not exempt from duty); and
• the property has a qualifying commercial or industrial use at the date of settlement.

A property is considered to have a qualifying commercial or industrial use if it meets one of the following conditions at the settlement date of a property transaction:

• property is allocated an Australian Valuation Property Classification Code (AVPCC) that represents commercial, industrial, extractive industries, or infrastructure and utilities land (included in the 200s, 300s, 400s, and 600s AVPCC categories), or
• property is qualifying student accommodation.

Commercial and Industrial Property Tax Reform Tax exemptions

The reform excludes:

• residential properties
• properties used for specific purposes (e.g. primary production, sport, heritage, culture purposes or community services)
• property transfers that are already exempt from stamp duty.

Commercial and industrial properties purchased before July 1 2024, are exempt unless 50% or more of the property is transacted after this date.

Existing concessions for stamp duty on commercial and industrial property will continue. Transfers eligible for the Regional Commercial and Industrial Duty Concession will receive a 50% reduction. Existing land tax exemptions apply to the Commercial and Industrial Property Tax.

Calculation and commencement of Commercial and Industrial Property Tax

The Commercial and Industrial Property Tax will be 1% of the property’s unimproved land value. The tax commences ten years after the first eligible transaction, following the midnight assessment on December 31 each year.

The unimproved land value is calculated with the Capital Improved Value (CIV) standards, where a property represents the assessed value of the land, structures, and any additional capital enhancements on the property, determined through the general valuation process. This value is presented on the property’s council rates notice.

Transition loan option

To alleviate the upfront burden, a government-facilitated transition loan is offered for properties with a purchase price of $30 million or under. The loan, available to eligible purchasers, has a fixed interest rate over ten years, with the first repayment due 12 months after settlement.

Upcoming information

Further details on fiscal impacts, legislation, and additional information on the reform are expected to be released before the start date of July 1 2024.

Talk to our team at AFS & Associates for more information.