Changes to stamp duty and the introduction of an annual property tax on commercial and industrial land under the Commercial and Industrial Property Tax Reform Act commenced 1 July 2024. Practitioners acting in matters involving commercial or industrial land in Victoria need to be aware of the full extent of these significant reforms.
Here we provide some additional answers to specific questions we have received from practitioners. We recommend practitioners use this information to gain a full understanding of the reforms and their practical application.
No, not in the current legislation. Under current law, a property will remain outside the CIPT regime (and will not become subject to annual CIPT) until the first transaction on or after 1 July 2024 that triggers entry into the reform. Annual CIPT will then become payable from and including the first calendar year after the 10-year anniversary of the entry transaction.
Is the 10-year transition or first entry transaction date calculated from the contract date or settlement date?
The ‘entry transaction’ is calculated from the date of the dutiable transaction or relevant acquisition under the legislation. For a direct land transfer, this is the settlement date.
For an 'entry consolidation', the entry date is the date on which the existing 'tax reform scheme land' that forms part of the consolidation first entered the CIPT regime (via a dutiable transaction or relevant acquisition). Similarly, for an 'entry subdivision', the entry date is the date on which the existing 'tax reform scheme land' that is subdivided first entered the CIPT regime (via a dutiable transaction or relevant acquisition).
Will the owner of commercial land be liable for both land tax and annual CIPT from 1 July 2024?The annual CIPT will commence in the calendar year following the expiry of the 10-year transition period, which period commences on the date of the transaction which causes the land to enter the CIPT regime (year 11).
After the transition period, the commercial or industrial property will be subject to both land tax and CIPT (assuming a land tax and CIPT exemption does not apply).
If a commercial property is owned by two tenants in common (50% each) and one transfers their interest (ie 50%), does that trigger the transition of the whole property to the CIPT regime?
Yes, if the contract and transfer is entered into on or after 1 July 2024.
How long can a commercial/ industrial property remain outside the CIPT regime?There is no stipulated timeframe, so indefinitely under current legislation.
Note however, if 50% or more of the interests in the property are directly or indirectly transacted or if the property is consolidated with existing 'tax reform scheme land' which forms 50% of more of the area of the consolidated land, it will bring the property into the CIPT regime.
Can a purchaser elect to pay stamp duty on a transaction on or after 1 July 2024 and not transition the property into the CIPT regime?
No, this is not an 'opt-in' regime.
Stamp duty must be paid on the first entry transaction on or after 1 July 2024 and CIPT will commence in the calendar year after the 10-year transition period has expired.
If the first transaction is in 2035 or after, does the 10-year transition period still apply or is it straight into the CIPT scheme?
In the current legislation, there is always a 10-year transition. If the first entry transaction was in 2035, CIPT would commence in the calendar year after the expiry of the 10-year transition period, so from the 2046 calendar year.
Does a subdivision, without transfer of land to a third party, result in the land entering the CIPT regime?
A subdivision by itself does not cause entry into the CIPT regime. However, a subdivision of land that has already entered the CIPT regime (i.e. 'tax reform scheme land') will cause the post-subdivision child lots to enter the CIPT regime with their entry date deemed as the same date that the parent lot had entered the regime.
If a client enters a contract of sale before 1 July 2024 that settles after 1 July 2024, will this obtain the benefit of the CIPT transitional provisions?
Yes. A pre-1 July 2024 contract that settles on or after 1 July 2024 comes within the transitional provisions (so the post-1 July 2024 settlement will not cause the land to enter the CIPT regime—see section 9(2) of the Commercial and Industrial Property Tax Reform Act 2024.
Does a rezoning to Commercial or Industrial land trigger the start of the transitional period?No, a rezoning of land is not itself an entry transaction, and therefore will not of itself result in the rezoned land entering the CIPT regime.
Please note that potential implications under the Victorian windfall gains tax would need to be considered for any rezoning.
Is it correct that the first purchaser on or after 1 July 2024 pays stamp duty, and then the second and subsequent purchasers will have no stamp duty on subsequent transactions?
Broadly, yes, there is no stamp duty on the second / subsequent transaction if before that transaction:
Yes. A transfer of property which is eligible for the regional stamp duty concession will still receive a 50% reduction in the stamp duty liability.
Note, although there is a reduction in the amount of duty, the transaction will (subject to all criteria being met) cause entry into the CIPT regime.
If a purchaser buys a property that is in transition to annual CIPT (i.e. after the first transaction on or after 1 July 2024), is it correct that they don’t pay stamp duty or annual CIPT during the transition period?
In general, yes. The second purchaser during the 10-year transition period does not pay stamp duty and will only become liable to pay annual CIPT in the first calendar year after the transition period ends (assuming there is no change in use for the property during that time).
If a transaction after 1 July 2024 triggers a property to transition to the annual CIPT (in 10 years), what happens if the property is sold after 5 years?
In general, assuming the property continues to have a qualifying commercial and industrial use, no land transfer duty applies on the sale in year 5 and the purchaser gets 5 years free of annual CIPT before it (CIPT) begins to apply from the first calendar year after the 10-year transition period (year 11). The start date for CIPT commences by reference to the first transaction, regardless of the change of ownership.
If the first purchaser had obtained a government transition loan for the stamp duty payable on the first entry transaction, the first purchaser would need to repay the outstanding balance under the loan in year 5 when the property is sold.
After the land transitions to the CIPT regime, the tax will be levied against all CIPT 'tax reform scheme land' (for which the 10-year transition period has completed) that is held by the same owner at midnight on 31 December each year, with the tax assessed for the following calendar year (like land tax).
If a landowner is assessed for annual CIPT on 31 December, do they get a refund from the SRO if they sell the property in the early part of the next year?
No. Similar rules that apply for land tax will apply for CIPT (e.g. any apportionment of an annual CIPT liability between vendor and purchaser of land that will be sold part way through the year will be based in contract, with prohibitions on a vendor's ability to recover CIPT from a purchaser where the sale price is below a high-value threshold which is subject to indexation each year).
Is it correct to say the owner of the land (after the transition period of 10 years) as at midnight on 31 December each year is assessed to pay and is liable for the tax and it cannot be passed on to a tenant or purchaser?
It is correct that the owner of land that has entered (and continues to be in) the CIPT regime will receive an annual assessment of CIPT for the calendar year based on a liability date of midnight 31 December immediately preceding the relevant calendar year.
The legislation currently prohibits pass on of CIPT to tenants under residential rental agreements or leases under the Retail Leases Act 2003.
The legislation also currently prohibits apportionment of a CIPT liability between a vendor and purchaser of land where the sale price is below a high-value threshold which is subject to indexation each year.
Is it correct that the CIPT aggregates land holdings but the relevant rate is always 1% of the unimproved value of the land?
Yes, broadly CIPT will be assessed on all CIPT 'tax reform scheme land' (for which the 10-year transition period has completed) that is held by the same owner at midnight 31 December for the following calendar year. CIPT will apply at the rate of 1% on the total unimproved value of all CIPT 'tax reform scheme land'.