How the new tax reforms benefit business owners
How Victoria’s New Commercial Land Tax Reforms Benefits Business Owners
Victoria’s stamp duty system for commercial properties has undergone significant reforms. These changes are designed to benefit business owners and property investors by reducing costs and simplifying the tax process. This new system arrives at a crucial time when property prices have plummeted due to rising interest rates and increased land taxes, making it an opportune moment to invest.Current Market Opportunity
With property prices having decreased significantly due to rising interest rates and the previous complexities of land tax, Victoria’s commercial real estate market is ripe with opportunity. These tax reforms further sweeten the deal for buyers and investors by reducing the financial barriers to entry and enhancing the overall attractiveness of property investment, allowing businesses to invest in properties to match their business size.Understanding the Reforms
Victoria has overhauled its commercial stamp duty system to address concerns about the impact of high taxes on businesses and property investors. The new streamlined annual tax approach offers a clearer and more predictable framework for property buyers and investors. From 1 July 2024, the Commercial and Industrial Property Tax Reform Act 2024 (the Act) has come into effect, providing for commercial and industrial property in Victoria being subject to stamp duty for a final time when it is next sold or otherwise transacted. Ten years after the sale of the property, it will transition from the old stamp duty system to the new annual Commercial and Industrial Property Tax (CIPT). The rate of the CIPT will be 1% of the unimproved value of the land (ie the site value, not including any capital improvements). This means if you purchase commercial or industrial property now, upon settlement you will pay the final stamp duty either as an upfront lump sum payment, or 10 annual instalments under a government transition loan (for Australian residents purchasing property with a value of up to $30 million). Ten years after the transaction, you will then commence CIPT payments.Any subsequent transaction of the property will not be subject to stamp duty and the subsequent purchaser will be liable for the CIPT after settlement if the original transaction (your purchase) related to 100% of the land, or the subsequent transaction occurred at least three years after the original transaction.Important Considerations
It is important to note that the CIPT replaces stamp duty only – land tax and windfall gains tax will still be payable if they apply to the property. Buyers who purchase with the intent to lease out the premises should be aware that landlords are prohibited from conferring CIPT to residential and retail tenants. The cost can be passed on to commercial and industrial tenants, however due to the wide scope of the Retail Leases Act, it is likely many commercial tenants would be classified as retail tenants. It is strongly recommended that you speak with a property or leasing lawyer before acquiring a property if you intend to lease the property out.There will no further surcharge on the CIPT for any acquisition of commercial and industrial properties by foreign persons. Strategic Planning and Next Steps for Buyers
The reforms present an excellent opportunity for prospective buyers to explore commercial property options. By transitioning to an annual tax system and eliminating additional surcharges and upfront payments, the new reforms create a more favourable investment environment. Buyers should consider how these changes align with their investment plans and take advantage of the current market conditions before the new system is implemented.Investors should also consider whether they will elect for the upfront final stamp duty payment, or take advantage of the ten-year loan scheme. It is recommended that you consult your team of advisors (real estate professionals, financial advisors or planners, and property lawyers) to ensure you have the best structures in place that align with your goals and the new system.Thanks to our friends at Broadside Lawyers for supplying the article.