Powered by MOMENTUM MEDIA
realestatebusiness logo
Home of the REB Top 100 Agents

Victoria scraps stamp duty for commercial properties in ‘landmark’ reform

By Zarah Torrazo
24 May 2023 | 14 minute read
daniel andrews mp reb giju3m

Commercial and industrial property buyers will soon no longer pay stamp duty after the Andrews government announced a “landmark” reform in Victoria’s tax system in a bid to boost the state’s economy.

The Victorian government has announced plans to abolish the lump-sum stamp duty for commercial and industrial properties, replacing it with an annual property tax.

From 1 July next year, commercial and industrial properties will transition to the new system as they are sold, with the annual property tax to be payable 10 years after the transaction.

==
==

Under the new system, the first purchaser of a commercial or industrial property after 1 July 2024, will have the option to choose to either pay the property’s final stamp duty liability as an upfront lump sum or opt to pay fixed instalments over 10 years equal to stamp duty and interest with a government-facilitated transition loan.

The historic property tax overhaul is expected to inject $50 billion into the state’s economy and comes at the centre of an Economic Growth Package in today’s (23 May) Victorian budget 2023–24.

Victorian Treasurer Tim Pallas said the changes would remove barriers to larger investments and speed up business growth.

“Business and industry have told us they want this reform, and we’ve listened,” Mr Pallas said ahead of the release of the state budget.

He stated that the landmark reforms would give businesses the capacity to become “more dynamic, agile, and to grow and employ more workers”, leading to increased employment opportunities.

The introduction of the annual payment system aims to provide businesses with more capital that can be invested in expanding operations and hiring additional workers.

Notably, these arrangements will not apply to the current owner of any commercial or industrial property purchased before the middle of next year.

But once a property enters the new system after this time, stamp duty will not be payable on a transaction and the annual property tax will apply.

The annual property tax, which will replace stamp duty, is set at a flat rate of 1 per cent of the property’s unimproved land value.

By removing upfront costs associated with commercial and industrial buildings, the Andrews government hopes to facilitate easier establishment and growth for businesses, ultimately boosting economic activity, job creation, and overall prosperity.

The government will consult with business and industry in the coming months, with the final form of the transition to be detailed by the end of the year.

Notably, the new tax arrangement for commercial and industrial property in Victoria is unique among the states and territories.

While South Australia has abolished transfer duty on commercial or industrial property deals, it has not introduced an annual property tax.

And although the ACT has eliminated stamp duty on transactions below $1.7 million, the territory’s government still imposes land rates.

Meanwhile, the Northern Territory still requires the payment of stamp duty but does not have a land or property tax.

The announcement to scrap the lump-sum payment also comes as an unexpected move from the state government after Premier Daniel Andrews last week said to the media that he was “unconvinced” that replacing stamp duty with an opt-in land tax — similar to the system introduced by the former NSW Coalition government would be effective.

Changes welcomed by industry bodies

Victorian Chamber of Commerce and Industry chief executive, Paul Guerra, welcomed the changes, which exempted residential properties.

“The Victorian Chamber has been working with the state government on this landmark and generational productivity reform, which businesses across Victoria will welcome,” he said.

Mr Guerra highlighted the change is “exactly the type of progressive tax reform” needed to free up stamp duty charges, which consequently will “accelerate building upgrades, stimulate investment in commercial property and free up more capital”.

Speaking on the announcement, Real Estate Institute of Victoria (REIV) chief executive Quentin Kilian said the abolishment of the stamp duty for commercial and property sales is an “encouraging sign for the sector and Victorian businesses”.

“We appreciate the government for opening a door to important tax reform; it shows a listening ear to the sector’s call for change,” he stated.

While the institute lauded the government for taking feedback from the industry into account, Mr Kilian noted the state real estate body will still “review the announcement fully”, and will particularly focus on “any increase in ongoing property ownership costs and how they impact capital flows and the rental and sales markets in the commercial sector”.

At the end of February, the state government announced Victoria’s Parliamentary Inquiry into Land Transfer Duty Fees, which aimed to look into issues surrounding land transfer duties, including stamp duty.

Following the announcement, Mr Kilian had urged the Andrews government to consult with property leaders and finance experts to ensure further strain is not placed on the market.

At that time, the state body’s executive cautioned that “there is a risk that the state government will jump to a quick fix of replacing one tax with another”.

Responding to Victoria’s Parliamentary Inquiry into Land Transfer Duty Fees in April, the institute has urged the government to consider shifting from the “tired tax” to a broad-based tax.

“The REIV has long sought an abolishment of this tired tax,” Mr Kilian stated.

“[Stamp] duty has created an excessive burden on home buyers for far too long, with fees for the median priced house currently sitting at approximately 48.9 per cent of a Victorian’s average annual income.”

Echoing his statements last month, Mr Kilian highlighted “stamp duty is a significant barrier to property investment and for as long as it remains in the residential property sector, millions of aspiring home owners and thousands of everyday mum and dad investors are impeded, which creates a significant negative ripple effect on the rest of the market.

“We look forward to continuing conversations with the government and other political representatives as they engage the property sector on the creation of better policy for the sector,” said Mr Kilian.

ABOUT THE AUTHOR


You need to be a member to post comments. Become a member for free today!

Do you have an industry update?