Stamp Duty Abolished…or is it? Introducing the Commercial & Industrial Property Tax reform

Stamp duty has long been a barrier to a buyer’s property transactions, whether they are entering the market for the first time or building a portfolio. The Victorian government has announced the abolishment of duty on eligible commercial and industrial properties (“CIPs”) (‘the reform’). From 1 July 2024, CIPs transactions will trigger a final stamp duty payment before incurring a 1% annual property tax (“CIPT”).

How does the reform work?

Once a transaction is triggered, most commonly from a purchase, a final stamp duty can either be paid:

  • Upfront via a lump sum; or
  • Fixed payments over a 10-year period secured through a government-facilitated loan (including interest).

After duty is paid for the final time, the property will be subject to the CIPT beginning 10 years after the transaction. This means if the duty is paid upfront, then no further duty is payable for 10 years until the 1% tax commences in the 11th year. 

Are there any exemptions?

Any existing concession or exemption currently available for eligible properties will continue to be available after 1 July 2024. However, these eligible properties will not enter the reform.  Only transfers of qualifying properties eligible for the Regional Commercial and industrial Duty Concession will enter the reform.

Qualifying properties for any land tax exemptions will also apply to the CIPT.

Mixed use properties

Some properties may have a mixed-use purpose, most commonly being a street level shop with a residence above. A ‘sole or primary use test’ will be used – this can be in reference to factors such as:

  • Land or floor area of each use;
  • Relative intensity, economic and financial significance of each use; and/or
  • Length of time of each use.

The test is used to determine if the property enters into the reform, and if so, whether the CIPT will apply. If the property does not qualify for the reform, then the CIPT will not apply. Importantly, where the property does qualify, then CIPT is applied to the entire mixed-use property.

Change-of-use

A property owner may decide to change the purpose for which their property is used. For example, an industrial warehouse could later be redeveloped into residential apartments.

Once a property enters the reform and is sold a subsequent time, stamp duty is not payable on that transaction. However, if this property is converted to a non-qualifying (ie. Non commercial or industrial property), then ‘change-of-use duty’ would apply. This captures properties where no stamp duty was paid on the recent transaction, but is also not liable for the CIPT.

Contact W Legal Group

For more information on the new reform, contact our team of lawyers at hello@wlegalgroup.com.au.

The above information was accurate at the time of writing. For the most updated information, please reach out to our team.

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