Home Property Australia Stamp duty abolished for commercial property: Vic budget

Stamp duty abolished for commercial property: Vic budget

  • May 24, 2023
  • by Property Australia
The Property Council of Australia Victorian Executive Director Cath Evans.

The Victorian Government has announced a plan to eliminate stamp duty for commercial and industrial properties, a move that is projected to generate an additional $50 billion for the state’s economy.

Starting in mid-2024, commercial and industrial properties will gradually shift to the new system as they are sold, and the annual property tax will become payable 10 years after the transaction takes place, according to yesterday’s budget.

To facilitate a transition, the initial buyer of a commercial or industrial property after 1 July, 2024, will have the option to make a one-time upfront payment to cover the property’s final stamp duty amount.

Alternatively, they can choose to transition immediately to an annual payment structure by opting for fixed instalments over a 10-year period, which will be equivalent to the stamp duty amount plus interest. The government will facilitate this transition process through a specially designed transition loan.

Cath Evans, Victorian Executive Director of the Property Council said the phased elimination of stamp duty fees for commercial and industrial property transactions is a fantastic initiative that, if implemented well, will greatly encourage economic activity and investment in Victoria.

“Stamp duty is an inherently destructive tax that discourages positive economic outcomes for the state. The Property Council has consistently called for its elimination from all transactions in Victoria, including residential properties – what the Government has outlined today is an encouraging first step towards broader tax reform,” she said.

The annual property tax that will ultimately replace stamp duty for commercial and industrial property will be set at a flat one per cent of the property’s unimproved land value.

Also announced in yesterday’s budget, significant new temporary levies are being introduced to drive the elimination of $31.5 billion of COVID-related debt within the next 10 years. These changes are “expected” to apply for 10 years, until 30 June 2033.

This includes a reduction in the tax-free threshold for land tax from $300,000 to $50,000 and fixed charges starting at $500 for landholdings between $50,000 and $100,000, and $975 for landholdings above $100,000.

The government will also increase land tax in rates of 0.1 percentage points for all rates above the $300,000 threshold for general taxpayers, and the $250,000 threshold for trust taxpayers.

Ms Evans said while the imperative for the government to address debt and spending was vital, the COVID Debt Levy is going to be a weight around the neck of the Victorian economy until it ends in 2033.

“Most of the state’s rental stock is owned by mum and dad investors that lease their investment properties to Victorian renters. An investor with a property with a land value component of just $100,000 will see a $975 land tax bill in their inbox from next year onwards,” Ms Evans said.

“The temporary land tax hikes risk having the side effect of reducing rental supply in the market, leading to upwards pressure on rents at a time when affordability is critical.

“Meanwhile the retail and commercial property owners who offered large rent deferrals and waivers to small business tenants in order to get them through the pandemic have been hit with higher tax bills to support the state’s debt recovery plan.”

The existing Absentee Owner Surcharge will increase from two per cent to four per cent, taking effect from 1 January 2024, aligning with NSW and reported to generate an extra $283 million a year from 2023-24 onwards.

Ms Evans said the industry was encouraged to see allocated funding of $23 million set aside for progressing a planning reform agenda and supporting local councils to deliver better housing outcomes.

“We look forward to further productive dialogue with the government to shape the stamp duty package and support an ambitious planning reform agenda later this year,” Ms Evans said.