Victoria is introducing significant changes to the way commercial and industrial properties are taxed by introducing Commercial and Industrial Property Tax (CIPT) from 1 July 2024. The abolition of stamp duty on these properties represents a major shift in the tax landscape, impacting how businesses calculate and manage the costs associated with property transactions.
Stamp duty will be progressively abolished and replaced with CIPT. Properties will transition to the new systems as they are transacted, with the annual property tax calculated at 1% of the site (unimproved) value to be payable commencing 10 years after the entry transaction.
How the New System Works
Commercial and industrial properties will not automatically enter the CIPT reform, land will only transition into CIPT if there is an eligible dutiable transaction or relevant acquisition known as entry transaction. Once entry transaction happens and final stamp duty is paid, land is brought within the scheme it is referred to as ‘tax reform scheme land’. Final duty can either be paid upfront or buyers can access a10 year loan from SRO (Interest applicable).
Entry into the reform may include:
- Entry Transaction on or after 1 July 2024 by way of change in beneficial ownership of land or relevant acquisition in a land holder.
- Entry subdivision.
- Entry consolidation on majority of area
Stamp duty will be replaced with CIPT, 10 years after the entry transaction, provided the property continues to have a qualifying use (Commercial and Industrail).
If the qualifying use continues, stamp duty is exempted for subsequent transfers if any of the following requirements are met:
- The entry transaction relates to 100% interest in the tax reform scheme land.
- The entry transaction relates to the same interest in the land that is being transacted.
Once the final stamp duty is paid after 1 July 2024 and entered into the CIPT regime, it will appear in the property clearance certificate (PCC) issued by the commissioner. PCC will specify the date land entered the regime and when the land will start to be assessed for CIPT.
Examples:
John owns a commercial property prior to 1 July 2024, he sells the property to Sam on 31 December 2024.
Sam will pay the final stamp duty in full; Sam’s purchase is treated as an entry transaction, and land is automatically brought into new tax reform scheme.
Once land is brought within the scheme it is referred to as ‘tax reform scheme land’.
Subsequent sale of this property is stamp duty free until 31 December 2034 (10 Years from the entry transaction date), it remains stamp duty free if the qualifying use of the property remains same and transfer is for 100% of the property.
Sam sells the commercial property to Rob on 31 December 2027, as the property was already in the new reform scheme, Rob don’t need to pay any stamp duty.
Rob holds the property until 31 December 2034, Rob will be issued CIPT assessment for first time at 1% in 2035 (11 year on wards)
If John retains the property until 31 December 2035 or beyond 2035, he doesn’t need to pay CIPT as there was no entry transaction and the property is not a tax reform scheme land.
