Victorian State Budget 2021-22

Victorian Treasurer, Tim Pallas, handed down the State budget on Thursday 20 May, which included a raft of tax changes that will impact a number of Victorian businesses.

Payroll Tax

Increase in the payroll tax threshold

An increase in the tax-free threshold for payroll tax from $650,000 to $700,000 will be brought forward to 1 July 2021.  The Victorian Government estimates that approximately 500 businesses will no longer be liable for payroll tax in 2021-22 due to the increase in the tax-free threshold and a further 42,000 businesses will pay less tax.

Reduced compliance

From 1 July 2021, Victorian businesses with a payroll tax liability of $100,000 or less will have a reduced compliance burden resulting from the announcement that they can now move from monthly to annual reporting.  Previously, annual reporting only applied to businesses with a maximum payroll tax liability of $40,000.  As a result, the Victorian Government estimates that approximately 7,000 more businesses will qualify to pay payroll tax on an annual basis.

Mental Health and Wellbeing Levy

In order to implement a range of mental health services as recommended by the Royal Commission into Victoria’s Mental Health System, the Government will introduce a Mental Health and Wellbeing Levy from 1 January 2022.  The Levy will be implemented as a payroll tax surcharge on Victorian wages paid by businesses with Australia-wide wages above $10 million per year, as follows:

  • Businesses with annual Australian wages over $10 million will be subject to a surcharge rate of 0.5% on the portion of their Victorian wages above $10 million; and
  • Businesses with annual Australian wages above $100 million will be subject to a surcharge rate of 1% on the portion of their Victorian wages above$100 million.

For employers who are members of a group, the surcharges will be based on the group’s total wages.  The two surcharges will be separately calculated from payroll tax albeit they will be included in the same return.

Land Tax

For the first time in more than ten years, the Victorian Government has announced an increase in land tax rates. Properties with an unimproved value of $1.8 million or more will be hit with a significant amount of additional land tax.

Key land tax changes

  • Windfall Gains Tax of 50% of uplifts in value greater than $500,000 due to rezoning, with phasing-in of the tax on uplifts between $100,000 and $500,000. Land subject to the Growth Areas Infrastructure Contribution will not be affected.
  • The land tax tax-free threshold for individuals and companies (absentee and non-absentee) will be increased from $250,000 to $300,000.
  • The land tax rate will increase from 1.3% to 1.55% for land with a taxable value above $1.8 million and not exceeding $3 million.
  • The land tax rate will increase from 2.25% to 2.55% for land with a taxable value above $3 million.
  • An exemption from Vacant Residential Land Tax (VRLT) will be available for newly completed homes for two years after completion, where the home has not been used or occupied and has not changed in ownership.
  • Partnership land held by a nominee entity may benefit from the general rates of land tax where a nomination of the partnership interests is made.

Stamp Duty

New premium stamp duty rate

If you are a home buyer, investor, and/or developer entering into a contract to purchase property in Victoria on or after 1 July 2021, you may have to pay additional duty where the dutiable value of the property exceeds $2 million. Property transactions with a dutiable value above $2 million will be subject to a new premium duty rate, where the duty payable will be $110,000 plus 6.5% of the dutiable value over $2 million.

If you are in the market to buy a property worth more than $2 million, you should consider whether you should and can sign the contract of sale prior to 1 July 2021.  This decision will partly depend on whether you may be eligible for the off-the-plan duty concession for contracts entered into from 1 July 2021.

Temporary widening of the off-the-plan duty concession

If you are a home buyer looking to purchase a property off-the-plan or a developer who is looking to sell properties off-the-plan, the good news is that the scope of the off-the-plan duty concession has been temporarily widened to cover higher-value properties for purchases made under contracts entered into on or after 1 July, resulting in stamp duty savings. Currently, the off-the-plan dutiable value ceiling is either $750,000 for first home buyers or $550,000 for other home buys. The off-the-plan dutiable value ceiling will be increased to $1 million for all home buyers.

Temporary stamp duty exemption or 50% concession for properties within the City of Melbourne local government area

If you are a home buyer or investor, consider the opportunity to save stamp duty for purchases of new residential property (with a dutiable value of up to $1 million) located within the City of Melbourne local government area. A temporary 100% stamp duty exemption will be introduced for purchases of new residential property that has been unsold for 12 months or more since completion with a dutiable value of up to $1 million within the City of Melbourne local government area. And a temporary 50% stamp duty concession for purchases of new residential property that has been unsold for less than 12 months since completion with a dutiable value of up to $1 million within the City of Melbourne local government area.

Here to help

If you have any concerns or questions about how these changes may impact your business please contact our Accounting and Business Advisory team.

Content source: Pitcher Partners communication to Critical Point Network members