Earlier in March 2024, the Victorian Government introduced the Commercial and Industrial Property Tax Reform Bill 2024 ('Bill'). The Bill reformed the Victoria's land transfer duty regime in respect of commercial and industrial properties, with stamp duty largely replaced by the new Commercial and Industrial Property Tax ('CIPT').
The Bill has passed the Victorian Parliament and reforms commenced on 1 July 2024.
How the new legislation would affect acquisition of commercial and industrial property ie. what are the consequences of signing a Contract on or after 1 July 2024?
The CIPT scheme will apply to qualifying commercial and industrial properties if the contract and settlement date occur on or after 1 July 2024, and that certain other conditions are met (e.g. 50% or more of the property transacts, and that there is a positive duty liability).
If a commercial and industrial property is purchased prior to 1 July 2024, it will not enter the CIPT scheme. Properties that have been coded as having residential, primary production, community services or sport, heritage and culture purposes will also be excluded from the reforms.
For eligible properties, a 10-year transition period will commence after one final stamp duty payment. Stamp duty will not apply to any subsequent transactions as long as the property continues to be used for a qualifying purpose.
How the transition loan will apply and when the loan becomes payment? If periodic, then what are each payment intervals?
For purchasers of eligible properties, they will have the option to either pay one final stamp duty for the property as a lump sum, or finance the final stamp duty liability through a government-facilitated transition loan ('transition loan'), which is equivalent to the property's final upfront stamp duty liability plus interest. Purchasers who opt for the transition loan option will be required to make annual loan repayments over 10 years starting from the time of purchase and the loan will be secured by a statutory charge.
The transition loan is available to purchasers who meet the following requirements:
- Australian citizens/permanent residents or an Australian business;
- The first purchaser of a commercial or industrial property where settlement occurs for contracts entered into on or after 1 July 2024;
- Purchasing property up to a maximum purchase price of $30 million; and
- Approved for finance from au Authorised Deposit-taking Institution or other approved lender for the subject property.
If the property is transacted again within the 10-year transition period, the initial purchaser will be required to make the remaining repayments before the settlement of sale.
How the commercial and industrial property will be taxed on and from 1 July 2034 (10 years from now)?
The CIPT will commence 10 years after the initial transaction. This means that if a qualifying property contracts and settles on 1 July 2024, it will become liable for CIPT on 1 July 2034.
The CIPT will be charged annually at a set rate of 1% of the property's unimproved land value.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.