From 1 July 2024, another Victorian state tax will be triggered for new commercial property owners and it is important for those thinking of purchasing or selling commercial property after 1 July 2024 to be aware of this new tax.

The commercial and industrial property tax is a new state tax in addition to land tax and is intended to replace stamp duty on commercial properties. From 1 July 2024, any commercial property sold enters this new system (i.e. contract and settlement date after 1 July 2024).

Under this new system, a final payment stamp duty is paid on the transfer and the new tax kicks in and is charged on the ten year anniversary after this sale. A 1% tax is owed annually by the property owner thereafter which is assessed on 31 December each year and is based on the property’s unimproved value. No stamp duty is then owed on any further purchases of this property while its use remains for commercial purposes.

There is a loan facility available from the government for purchasers to access in certain circumstances to pay off the stamp duty on the purchase over 10 years. Effectively, this loan – which has interest charged – can be used to fund the stamp duty to free up working capital for the business. This loan is paid off and then the new 1% tax is charged annually.

It is important to take note of this new system when purchasing new commercial property for a number of reasons: 

If you own the property and have used the government loan, you need to pay back this loan if you sell the property within 10 years;

If the property has been sold post 1 July 2024 and then sold again, no stamp duty will be payable on the transfer. However, purchasers will need to take note of when the property was originally transferred as the 1% tax will kick in based on the 10-year period after the first sale post 1 July 2024.

If the purpose of the property changes, then a change of duty tax may arise. For instance, if you purchased a property as a commercial property but then converted it for residential use, stamp duty would be owing at that time and also on the subsequent sale by the new purchaser. However, the 1% annual tax will also no longer be charged.

For property owned by companies or unit trusts, this new tax can be triggered by selling more than 50% ownership in the entity.

This new tax makes commercial property much more complicated and it is important to receive the correct legal advice prior to entering into any transaction post 1 July 2024. If you have any questions, please do not hesitate to contact us.