Tax Alert

Property tax reform in Victoria on the way

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8 minute read
March 26, 2024

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Major Victorian State tax reform commencing on 1 July 2024 has now arrived in the form of the Victorian Commercial and Industrial Property Tax Reform Bill.

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26 March 2024

In Brief

The Victorian Commercial and Industrial Property Tax Reform Bill (Bill) was introduced into the Victorian Parliament last week following the initial announcement almost 12 months ago as part of the Victorian Government’s 2023-24 Budget.

The Bill seeks to implement the Commercial and Industrial Property Tax (CIPT). It reflects the Government’s desire to reform Victoria’s tax system for relevant commercial and industrial properties, commencing from 1 July 2024.

In Detail

The CIPT will apply to Victorian land with a qualifying commercial or industrial use (qualifying use) as determined by the Australian Valuation Property Classification Code (AVPCC), as well as certain land used for student accommodation. The codes are allocated to land as part of the valuation process under the Valuation of Land Act 1960 (Vic), with land allocated a AVPCC in the ranges 200-499 or 600-699 qualifying for the scheme.

The CIPT is not intended to apply to owners of residential, primary production, community services, sport, heritage or cultural properties.

Tax Reform Scheme Land and Qualifying Interest

Land with a qualifying use enters the scheme and becomes tax reform scheme land:

on the occurrence of a qualifying dutiable transaction or qualifying landholder transaction in respect of that land (referred to as an entry transaction);
on certain subdivisions of land (referred to as an entry subdivision); and
consolidations of land already in the scheme (referred to as entry consolidation).

The interest in the land must also be a qualifying interest or amount to a qualifying interest in land when aggregated with other interests in the land. A qualifying interest in relation to land means an interest in land of 50% or more.

An interest in land obtained by a person under a qualifying dutiable transaction can be aggregated (and hence amount to a qualifying interest) where, for example, the transactions occur within 12 months and arise under substantially one arrangement, or in the case of acquisitions by the same person or associated persons where the dutiable transactions occur within a three-year period.

For qualifying landholder transactions, aggregation of interests can arise where the acquisitions occur within a three-year period and are made by the same person or associated persons. The Commissioner will be permitted to not aggregate interests in certain circumstances.

Entry transaction – qualifying dutiable transactions

Qualifying dutiable transactions:

include dealings in estates or interests in land under the Duties Act 2000 (Vic) (Duties Act), such as estates in fee simple, life estates, estates in remainder and Crown leasehold estates (relevant land);
include transfers, declarations of trust, vesting of land and changes in beneficial ownership relating to land;
do not include dealings in certain leases that are dutiable under the Duties Act, nor the acquisition of an economic entitlement within the meaning of the Duties Act;
do not include a transaction that is eligible for an exemption under the Duties Act, nor a transaction that is eligible for a corporate reconstruction concession under the Duties Act;
do not include transactions if they occur pursuant to an agreement or arrangement that was entered into before 1 July 2024.

Entry transaction – qualifying landholder transactions

Qualifying landholder transactions:

are transactions that result in a relevant acquisition under the Duties Act;
at the time of the acquisition the land is relevant land;
are not exempt acquisitions;
are not eligible for a corporate reconstruction concession under the Duties Act;
are not made pursuant to an agreement or arrangement that was entered into before 1 July 2024.

Entry consolidation

A consolidation of land is an entry consolidation if, as a result of the consolidation:

tax reform scheme land is consolidated with -
1. land that has not entered the tax reform scheme; or
2. with other tax reform scheme land; and
50% or more of the area of the consolidated land is tax reform scheme land.

Entry subdivision

A subdivision of land is an entry subdivision if the land that is subdivided is tax reform scheme land.

The child ‘titles’ that result continue to be tax reform scheme land.

Transition Loan

Purchasers of tax reform scheme land will be subject to duty on an entry transaction.

However, they will have the option of accessing a government-facilitated transition loan on commercial terms to fund the payment of duty on the transaction that results in the land becoming tax reform scheme land.

Transition Period

After a transition period of 10 years (starting on the date the land entered the scheme), the CIPT begins to apply to the land.

The CIPT is separate from and in addition to other existing taxes that may apply to the land (such as land tax, windfall gains tax, local government rates and charges, and the fire services property levy).

CIPT

The CIPT will be assessed each calendar year on land owned as at midnight on 31 December in the year preceding the tax year (CIPT taxable land) - in a similar manner to land tax under the Land Tax Act 2005 (Vic) (LTA).

The CIPT taxable land is land that –

is tax reform scheme land;
is no longer within the transition period of 10 years;
has a qualifying use; and
is taxable land under the LTA (land that is exempt under the LTA is not subject to the CIPT).

The rate of CIPT is 1% of the site value of the taxable land. The taxable value is the same as that which applies to land tax.

In the case of land that is build to rent (BTR) land, the rate of CIPT is 0.5%.

Amendments to the Duties Act

The Bill contains new duty exemptions for certain eligible transactions (referred to as a tax reform scheme transaction) in relation to tax reform scheme land, such that once land has entered the scheme, exemptions from transfer duty and landholder duty may apply.

Change of use

A dutiable transaction relating to tax reform scheme land will be chargeable with duty if an exemption from duty applied (because, for example, the land was tax reform scheme land at the time of the transaction), but there is a change of use of the land that results in the land no longer having a qualifying use and the transferee under the dutiable transaction continues to hold an interest.

In such a case, duty will apply to the dutiable transaction. Duty will be assessed on the dutiable value of the tax reform scheme land at the time of the dutiable transaction (and not at the time of the change of use). However, the amount of duty calculated is to be reduced by 10% for each calendar year that has elapsed since the date of the dutiable transaction that is being assessed for duty.

Similar rules will also apply to tax reform scheme land in a landholder duty context.

Other pertinent related matters

The Commissioner can make a reassessment of CIPT more than five years after the initial assessment.

Unpaid CIPT is a first charge on the land and the charge will generally have priority over all other encumbrances to which the land is subject.

The Commissioner can recover the CIPT from a lessee or occupier of the land that is subject to the CIPT. In this case the amount recovered is deemed to be an equal amount of rent paid to the owner / taxpayer under the lease or agreement.

Specific anti-avoidance provisions will be introduced in respect of obtaining a reduction in or exemption from CIPT, or in respect of land that would otherwise be or become tax reform scheme land or CIPT taxable land.

The Takeaway

The Bill introduces significant State tax reform on 1 July 2024. Taxpayers should be across the reforms and particularly whether transactions bring land into the new regime. Under the new regime, after a transition period of 10 years, CIPT will be imposed each year on the land. This will be in addition to other taxes imposed in relation to the land. Taxpayers will also still need to be mindful of any duty implications, for example, on a change of use of the land.

Contact us

If you would like to further discuss these reforms, reach out to our team or your PwC adviser.

Barry Diamond

Partner, State Taxes, Melbourne, PwC Australia

+61 (3) 8603 1118

Rachael Cullen

Partner, Tax, Sydney, PwC Australia

+61 409 470 495

Matthew Sealey

Partner, Financial Advisory - Tax, Sydney, PwC Australia

+61 400 684 803

Ari Esmerian

Partner, Global Tax, PwC Australia

+61 420 360 654

Cherie Mulyono

Partner, State Taxes & Shine (PwC's LGBTIQ+ network), PwC Australia

+61 2 8266 1055

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