Victoria has recently undergone a major shift in its property taxation system, replacing the traditional stamp duty on commercial and industrial properties with an annual property tax. This reform, effective from 1 July 2024, is expected to lower the initial financial burden for businesses investing in these properties while promoting long-term economic growth.

Overview of the Reform

The Commercial and Industrial Property Tax (CIPT) replaces upfront stamp duty with an ongoing annual tax, calculated as 1% of the unimproved land value. This move is designed to make property transactions more fluid by reducing the immediate cost barrier associated with stamp duty.

For properties acquired on or after 1 July 2024, buyers will still need to make a final stamp duty payment, either:

1. As a lump sum upfront, or
2. In 10 annual instalments via a government-facilitated loan (with interest).

Once this last payment is completed, no further stamp duty will apply to future sales of the property, provided it continues to be used for commercial or industrial purposes.

Key Features of the CIPT

• Flat Rate Tax: 1% of the land’s unimproved value.
• Ongoing Taxation: Begins 10 years after the last stamp duty payment.
• Stamp Duty Exemptions Remain: Properties already exempt from stamp duty (e.g., charitable entities, deceased estates) continue to be exempt.
• Transitional Loan: Available to eligible purchasers to assist with their final stamp duty payment.
• Student Accommodation Included: Purpose-built student housing will qualify under commercial property taxation.

Eligibility and Scope

To fall under the CIPT regime, a property must meet the following criteria:

1. The transaction must occur on or after 1 July 2024 and involve a qualifying interest (at least 50% of the property is transferred).
2. The property must be used for commercial or industrial purposes at the time of transaction.
3. The property must not be part of an exempt category, such as residential, primary production, or certain community-use land.

Implications for Investors

• More Flexibility: Businesses and investors will no longer face the large upfront cost of stamp duty, allowing better cash flow management.
• New Considerations for Buyers: Future owners will inherit the annual property tax obligation instead of a one-time stamp duty payment.
• Subsequent Sales: Once a property enters the CIPT regime, future sales will not be subject to stamp duty.
• Interaction with Other Taxes: CIPT will be separate from land tax, meaning property owners may still have land tax obligations in addition to the new property tax.

Change of Use and Exemptions

If a commercial or industrial property converts to a non-qualifying use (e.g., residential development), a change-of-use duty may apply. This charge is calculated based on the amount of stamp duty that would have been payable at the last transaction, with an annual discount of 10% for each year the property was subject to the CIPT.

What’s Next?

As this reform approaches, property investors and business owners should assess their options carefully. Deciding whether to opt for upfront payment or the 10-year loan scheme, will be a key financial consideration.

With potential ripple effects across other states, Victoria’s shift away from stamp duty marks a significant change in the property investment landscape. Investors should consult tax professionals to navigate this transition effectively.