Victorian commercial property stakeholders will be the next to benefit from groundbreaking changes to stamp duty.

This year, transactions involving Victorian commercial and industrial property will cease to be subject to stamp duty, a move that will occur after one final round of stamp duty for any post-July 1 2024 purchases. The abolition of the much-debated charge will of course only be available if the property is to continue as a commercial or industrial premises, while the move itself is expected to pump around $50 billion into the Victorian economy and help kickstart a more dynamic era. 

New improved system

The commercial sector must now get its collective head around stamp duty’s replacement – the Commercial and Industrial Property Tax (CIPT). This charge will be calculated at a rate of one per cent of the property’s unimproved land value and payable in addition to any land tax attached to a premises. Under the new system, CIPT becomes payable annually once 10 years has passed from the original sale.

Among finer details are reasons why a property is not admitted to the CIPT system. This will be the case if:

  • The sale was exempt from stamp duty in the first case, for instance a transfer of a deceased estate, or a transfer between a spouse or partner.
  • Duty is triggered due to complex red tape, such as those transactions eligible for corporate consolidation concession, or sub-sale provisions.

The new tax will be imposed on properties that qualify for particular commercial or industrial uses. This means land that carries an Australian Valuation Property Classification Code (AVPCC), as well as student accommodation, an increasingly popular asset class among investors.

Easing the way

A factor set to ease the transition to the new system are government loans for upfront duty. Buyers of qualifying commercial or industrial property (on or after July 1 this year) can choose between paying the final stamp duty as an upfront payment or with a transition loan, facilitated by the State government, that can be paid back over a period of 10 years via a repayment plan starting 12 months after settlement of the purchase. (Foreign owners however are ineligible for such a loan.) What’s more, the loan will carry a fixed interest rate calculated at the start of the loan.

Why make the change?

Because the benefits of doing so have been proven elsewhere. When South Australia boldly removed stamp duty from commercial property in 2018 it was attributed with stimulating economic growth, significantly boosting the commercial sector, and attracting investment dollars from both domestic and international markets.

Commercial property investors in South Australia’s continue to benefit from hefty savings since the change. The stamp duty saving in South Australia on $1 million commercial property for instance currently stands at $48,830. On a $5 million investment? A more than satisfying $268,830 saving, and on a $10 million transaction, well over half a million dollars. Little wonder that interest in South Australia’s commercial properties shot up following the massive shift in policy. It’s still working its magic too, Burgess Rawson auction house reporting all assets offered in its most recent South Australian portfolio auction selling either prior or under the hammer.

Tellingly, South Australia now sits atop CommSec’s quarterly State of the State report for the first time since the reports’ inception 14 years ago.

As far as taxation changes go in other states, it is a matter of watch this space. With that in mind, here are the stamp duty figures relating to commercial property transactions elsewhere in the country.

New South Wales: Between 1.25% and 6.75% of the purchase price

Victoria: (Currently, prior July 1 2024) 1.4% - 6.4%

Queensland: 1.5% - 5.75%

ACT: 4% - 6.25%

Tasmania: 2% - 4.5%

Western Australia: 1.9% - 5.15%

Northern Territory: 2% - 5.75%

South Australia: 0%