The transition from Stamp Duty to an Annual Property Tax
If you own a commercial or industrial property or are you thinking about acquiring one its important to understand how the Commercial and Industrial Property Tax (CIPT) reform scheme might affect you.
The CIPT commenced operation on 1 July 2024 and will, generally, apply to properties allocated an Australian Valuation Property Classification Code (AVPCC) in the range 200-499 and/or 600-699 and the land is used solely or primarily for a use described in the requisite range.
You can find the property’s AVPCC on your Council rate notice.
If your property (or one that you purchase or intend to purchase) has a ‘qualifying use’ and a ‘qualifying entry transaction’ the property will enter into the CIPT scheme.
Following payment of the first dutiable transaction after 1 July 2024 the property will then enter into a 10-year transition period during which any subsequent transaction will, generally, be free of stamp duty.
If a transaction with the property is non-dutiable or an exemption from stamp duty is claimed the property will not enter into the CIPT scheme at the time of that transaction.
The first payment of stamp duty by a purchaser of the property after 1 July 2024 can be paid up-front at settlement or via a Government funded ‘transition loan’ from the Treasury Corporation of Victoria (subject to eligibility requirements and fixed interest rate) which is repayable by fixed annual payments over 10 years.
At the end of the 10-year transition period the property will then become liable to an annual property tax (CIPT) of 1% of its ‘site value’.
The payment of CIPT will be in addition to any other State taxes levied against the property, including Council rates and land tax.
What should you do now?
Property you owned before the CIPT scheme commenced will not enter the CIPT scheme and will not be subject to the annual property tax, provided that nothing you do in relation to the property or its ownership causes an ‘entry transaction’ to crystallise.
If you are considering purchasing a commercial or industrial property, or you are intending to change the use of a property that is currently non-qualifying, you will need to consider if the CIPT scheme will have an impact in the future.
Some important considerations apply to the impact of the CIPT scheme to Leases and Superannuation funds and trusts as well as upon a sale of commercial and industrial property:
Sales of property
- A vendor is prohibited from passing on or recovering the annual CIPT or any outstanding ‘transition loan’ amounts from the purchaser
Leases
- If your property is leased under the Retails Leases Act you are prohibited from passing on or recovering the annual CIPT from the tenant.
Superannuation funds and trusts
- A SMSF or trust is still liable for CIPT that is held in the capacity of trustee for that trust.
- A transfer of property from the SMSF or trust to a beneficiary may result in an ‘entry transaction’ and cause the property to enter the CIPT regime. Careful consideration needs to be given to whether the transfer of property to the beneficiary can be made in a manner which can avoid entry into the CIPT regime.
If you would like further information on the above, please call our office on 03 5976 6500 or contact us for further legal advice for your specific circumstances.
Disclaimer: the above information is general in nature and not to be taken as legal advice. The information contained does not take into account individual circumstances or current or proposed dealings with any property or its ownership. The rate of CIPT specified is the currently legislated rate and may be subject to change via legislative amendment.
