ALERT: Victorian tax changes to impact property owners
The Victorian government recently unveiled several significant changes to state taxes, introducing various amendments together with some of the changes announced in May’s budget. The State Taxation Acts Amendment Bill 2023 (the Bill) had previously passed the Legislative Assembly and on Tuesday night was passed by the Legislative Council.
One of the key changes outlined in the Bill is the introduction of temporary COVID-19 debt levies for payroll tax and land tax. These levies will provide additional revenue streams to go some way towards dealing with the costs incurred by the Government during the pandemic. Moreover, adjustments will be made to the payroll tax-free thresholds and exemptions, further increasing payroll tax revenue.
Under the Land Tax Act 2005 (Vic), the absentee owner surcharge will see an increase. The surcharge, applicable to owners not residing in Victoria, will be raised from the current 2% to 4%. Additionally, the minimum threshold for non-trust absentee owners will be reduced from $300,000 to $50,000. These changes are being implemented to align Victoria's regulations with those of New South Wales.
The Bill also addresses the taxation of Corporate Collective Investment Vehicles (CCIVs). Amendments are being made to the Duties Act 2000 (Vic), Payroll Tax Act 2007 (Vic), and Land Tax Act to provide clarity on how CCIVs will be treated for duty, payroll tax, and land tax purposes. This includes considering each sub-fund of a CCIV as a unit trust scheme, with the CCIV as the trustee and the members as beneficiaries.
The Growth Areas Infrastructure Contribution (GAIC) has had provisions introduced to clarify its application. These provisions explain how the GAIC will now apply in cases where a statement of compliance is not required for a plan of subdivision (such as s.35 plans of subdivision, which to this point, were exempted subdivision). This will particularly impact developers of greenfield sites. Furthermore, guidelines are provided for the apportionment of a GAIC contribution among child lots when a child lot is completely outside the contribution area.
The Victorian government has announced a future change concerning stamp duty on commercial and industrial properties. Starting from July 1, 2024, the first purchaser of such properties will have the option to either pay the stamp duty upfront or transition to an annual payment plan spread over ten years. Interest will be applied to these annual payments and after ten years, an annual property tax will be imposed, amounting to 1% of the property's unimproved land value. It is important to note that these changes will not affect properties acquired before July 1, 2024. More details on this transition will be released by the end of 2023.
There is also a COVID-19 debt levy applied to a number of aspects around the calculation of Land Tax. Starting from January 1, 2024, the tax-free threshold for general land tax rates will be reduced from $300,000 to $50,000, and those taxpayers with landholdings valued between $50,000 and $300,000 will also attract a temporary charge ranging from $500 to $975. Additionally, the land tax rate will be increased by 0.1% for taxable holdings above $300,000 for property subject to general land tax rates and above $250,000 for property subject to trust surcharge rates.
On payroll tax, a COVID-19 debt levy will be introduced starting from July 1, 2023. Businesses with a national payroll above $10 million will be subject to an additional payroll tax levy on Victorian wages above certain thresholds. The levy will be set at 0.5% for businesses with a national payroll between $10 million and $100 million and 1% for those with a national payroll exceeding $100 million. This levy will be abolished from July 1, 2033.
In addition, the payroll tax-free threshold will undergo changes. Effective from July 1, 2024, the threshold will increase from $700,000 to $900,000. Then, from July 1, 2025, it will rise to $1 million. However, businesses with wages exceeding $3 million will experience a reduction in the threshold for each dollar paid over that amount. Companies with wages surpassing $5 million will no longer benefit from the tax-free threshold.
Also starting July 1, 2024, the payroll tax exemption for high fee non-government schools will be abolished, affecting approximately 110 schools. This change will result in these schools becoming subject to payroll tax. This proposal has attracted significant criticism and the final threshold for this measure may be may be increased to limit the number of schools subject to payroll tax.