Stamp Duty Out, Commercial and Industrial Property Tax In Starting 1 July 2024

1. From 1 July 2024, a new state taxes regime commences for certain commercial and industrial properties. Upfront land transfer (stamp) duty will be phased out in lieu of a new annualised Commercial and Industrial Property Tax (New Tax).

2. The New Tax will be applicable to commercial and industrial properties transacted from 1 July 2024.

Who does this new tax apply to?

3. A property will be subject to the New Tax if the following requirements are met:

3.1. a contract of sale is entered on or after 1 July 2024;

3.2. 50 per cent or more of the property transacts;

3.3. land transfer (stamp) duty is payable; and

3.4. it has a qualifying commercial or industrial use at the date of settlement.

4. For more information see the announcement from the Victorian State Government.

5. A property will be considered to have a ‘qualifying commercial or industrial use’ if it meets one of the following conditions at the day of settlement:

5.1. the property has 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

5.2. the property is a qualifying student accommodation.

6. The New Tax will not apply to:

6.1. property primarily used for residential purposes;

6.2. property primarily used for primary production, community services, sport, heritage, or culture purposes;

6.3. transfers of commercial or industrial property that receive an exemption from stamp duty, for example due to being a transfer from a deceased estate, or a transfer between spouses or partners;

6.4. commercial and industrial property purchased prior to 1 July 2024 (unless 50 per cent or more of the property is transacted after this date).

How will the tax be applied to my property?

7. The first eligible transaction of a qualifying commercial or industrial property after 1 July 2024 will still require the transferee to pay stamp duty at normal rates. However, after this date, stamp duty will no longer apply for any subsequent transactions. Going forward, the New Tax will start 10 years after:

7.1. the first eligible transaction of a commercial or industrial property after 1 July 2024; or

7.2. 1 July 2024.

8. The New Tax will be calculated at one per cent of the property’s unimproved land value, with exemptions and concessions applying. It is important to note that this new annual tax will be in addition to ordinary land tax (current set at 2.65%). 

Transition loan available

9. The first purchaser will have the option to apply for a transition loan instead of paying the duty liability in a lump sum payment. The transition loan will be limited to individual Australian citizens or permanent residents or Australian businesses who are:

9.1. the first purchaser of a commercial or industrial property where settlement occurs for contracts entered into on or after 1 July 2024;

9.2. purchasing property up to a maximum purchase price of $30 million; and

9.3. approved for finance from an Authorised Deposit-taking Institution or other approved lender for the purchase.

10. The transition loan has various conditions attached to it, including:

10.1. the interest rate will be fixed over the 10-year term of the loan, and will be paid off in annual principal and interest repayments;

10.2. the first repayment will be due 12 months after settlement;

10.3. early repayments will be allowed but break fees will apply;

10.4. if the property is sold before the end of the 10-year term, the balance of the loan will be paid off from the proceeds of the transaction;

10.5. the loan cannot be novated or transferred to a subsequent purchaser.

11. Despite the availability of a transition loan, purchasers can elect to pay the duty liability in a lump sum. In these circumstances, the New Tax won’t apply until 10 years after the settlement date.

Final comments

12.We recommend that investors and SMSF trustees who invest in commercial and industrial property should consider whether their existing or planned acquisitions will be impacted by these changes. Existing structures should also be assessed to ensure annualised land tax liabilities are minimised where possible.   

13. If you require assistance or wish to obtain further information in relation to these changes, please contact:

Alasdair Woodford
Principal Lawyer
T: 03 5225 5217| M: 0436 456 144
E: awoodford@ha.legal

Joseph Flanagan
Associate
T: 03 5226 8504
E: jflanagan@ha.legal

Ben Smith
Lawyer
T: 03 5225 5262
E: bsmith@ha.legal