This article is from the Australian Property Journal archive
THE Victorian government will abolish stamp duty charges for commercial and industrial properties, a move it believes will result in a $50 billion cumulative increase to the size of the state’s economy.
Commercial and industrial properties will transition to the new system as they are sold from July 2024, with the annual property tax to be payable from 10 years after the transaction.
The annual property tax will be set at a flat 1% of the property’s unimproved land value.
The first purchaser of a commercial or industrial property after 1st July 2024 will be able to choose to either pay the property’s final stamp duty liability as an upfront lump sum, or transition to an annual payment immediately by opting to pay fixed instalments over 10 years equal to stamp duty and interest with a government-facilitated transition loan, the government said.
“Choosing the annual payment will free up much-needed capital that businesses can invest in expanding their operations and employing more workers,” said Treasurer Tim Pallas.
The arrangement will not apply to the current owner of any commercial or industrial property purchased before 1st July 2024.
Once a property enters the new system after this time, stamp duty will never again be payable on a transaction and the annual property tax will apply.
“Removing upfront costs on commercial or industrial buildings will make it easier for businesses to get established and thrive, boosting economic activity, jobs and growth. It means a retail business can be more confident about moving to a new location, or a transport operator requiring additional space will have fewer barriers to expand,” Pallas said.
Stamp duty brought in $10.4 billion to the state’s coffers in FY22, accounting for a record 33.9% of total taxes, and much higher than the long-term average of around 23%. Including land tax paid by investors, property taxes made up a whopping 47.5% of the state’s tax take.
Stamp duty will fall to $8.2 billion in FY23 due to the slowing housing market, and the government expects returns to fall another 10.4% in FY24 to $7.4 billion before recovering to $8.1 billion and growing 8.4% annually over the forward estimates.
The government will consult with business and industry in coming months over the change, with the final form of the transition to be detailed by the end of the year, it said.
“This is exactly the type of progressive tax reform that is required to free up stamp duty charges which will accelerate building upgrades, stimulate investment in commercial property and free up more capital,” said Victorian Chamber of Commerce and Industry CEO Paul Guerra.
Fitzroys’ Chris James said the abolition of stamp duty will likely encourage higher turnover of commercial and industrial real estate, reduce the barrier to entry for investors in commercial real estate and assist those with less upfront capital, and potentially entice interstate investment in Victorian property.
Julie Toth, PEXA chief economist said there may be a brief period of delayed settlements over the coming year, as prospective buyers wait for the new, more favourable stamp duty arrangements to kick in.
Property Council executive director, Victoria Cath Evans said “stamp duty has always been the worst tax of the lot” but “what’s been announced today still needs significant development and industry input” and “If done well, this could be a transformational moment for our economy”.
The reform does not apply to residential properties. The Victorian government had been considering giving home buyers the option of paying an annual land tax instead of the large upfront stamp duty, and the opposition had said it is open to changes. But Premier Daniel Andrews said last week he was “unconvinced” by the scheme.
“I’m not entirely certain that it is everything that people make it out to be. You had a policy decision made in NSW, then when it got implemented it went from being a compulsory scheme with all these macro benefits…(to) an optional scheme,” he told reporters last week, referring to changes in NSW.
“I don’t know they necessarily get all of that aggregated benefit if it’s not happening everywhere.”
Real Estate Institute of Victoria CEO Quentin Kilian said the abolishment of stamp duty for commercial and industrial property sales is an “encouraging sign for the sector, and Victorian businesses more broadly”.
“We appreciate the government for opening a door to important tax reform – it shows a listening ear to the sector’s call for change.
“Stamp duty is a significant barrier to property investment and for as long as it remains in the residential property sector, millions of aspiring homeowners and thousands of everyday mum and dad investors are impeded, which creates a significant negative ripple effect on the rest of the market.”
