Changes to tax on commercial and industrial property from 1 July 2024

The Victorian Government is progressively abolishing stamp duty for commercial and industrial (‘C&I’) properties that have contracted and settled from 1 July 2024, with stamp duty to be replaced for these properties by a new Commercial and Industrial Property Tax.

Victorian SMSF trustees, in particular, that invest in commercial and industrial property from 1 July 2024 will also need to be aware of how a new tax will work. While it is not yet law, it leaves just only 3 months to plan ahead.

There are approximately 265,000 commercial and industrial properties in Victoria, and the intention is that by removing upfront costs on these types of property purchases will accelerate business growth and boost jobs.

The reform will not apply to the following:
Property primarily used for residential purposes.
Property primarily used for primary production, community services, sport, heritage, or culture purposes.
Transfers of commercial or industrial property that receive an exemption from stamp duty, for example due to being a transfer from a deceased estate, or a transfer between spouses or partners.
Commercial and industrial property purchased prior to 1 July 2024 (unless 50 percent or more of the property is transacted after this date).

Previously, acquisitions of residential or commercial and industrial properties in Victoria before 1 July 2024, incurred land transfer duty, commonly known as stamp duty, amounting up to 6% of the purchase price.

Under the new regime, C&I properties sold or transferred after 1 July 2024, will initiate a 10- year transition period. This transition allows purchasers the option to either:
pay duty upfront, or
spread it over 10 years with a government-facilitated loan (Vic Loan) along with interest and various conditions.

During this 10-year transition period, a subsequent sale of that property will not incur duty, nor will it incur the new tax until the 10-year transition period has concluded.

Post-transition, the new tax will be calculated at 1% annually on the unimproved land value and becomes the responsibility of the property owner (not the retail tenant). This 1% is payable in addition to any other land tax.

Regardless of the chosen payment option, the 10-year transition period commences from the date of the initial transaction post-July 1, 2024.

Below is an example the State Revenue Office has stylised of how entry into the new tax system will work:

Other important points for SMSF Trustees:

Some of the main points experts have flagged that may impact you and/or your SMSF which require careful consideration of are:
Upfront duty payment is necessary if the SMSF purchases the property outright and it hasn’t entered the 10 year transition period, as borrowing through a Vic Loan might violate regulation 13.14 Superannuation Industry (Supervision) Regulations 1994 (Cth) by resulting in a charge be placed on the property.
For multiple-use properties, the determining factor for tax implications lies in their primary use, as clarified the Victorian Department of Treasury.
SMSF Trustees looking at transferring or selling C&I property should get expert advice as this could affect the property’s value.
If a property purchased in a SMSF has entered the 10 year transition period and this period has now expired, i.e. say, 1 July 2034, then the trustee will have to pay 1% on the unimproved value of the property. This could have a serious impact on cashflow in the SMSF.

The above is relevant to all future purchases - not just limited to SMSFs, so before you buy or sell your commercial or industrial property have a chat to us for further information on how this may affect your tax position.

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