As we’ve noted previously, commercial and industrial properties sold or transferred on or from 1July 2024, will enter the new commercial and industrial property regime. Broadly, the regime will operate such that future transfers will not trigger land transfer (stamp) duty but rather the property will be subject to a (further) set of land tax, known as commercial and industrial property tax (CIPT).

As noted below, while subsequent purchasers will no doubt appreciate not paying land transfer (stamp) duty, the system is not without issues. This includes, as noted below, having a two regime system with pre-CIPT grandfathered properties and post CIPT properties. In addition, will this further cost be passed on to tenants?

When is the new tax payable?

A commercial or industrial property that has a contract and settlement date on or after 1 July 2024 will enter the reform. Land transfer (stamp duty) will be paid one final time on the property when it is transacted, and CIPT will commence to be payable 10 years after this final duty payment. This is regardless of whether this property has been transacted again. That is, land transfer duty will no longer be payable on the property (unless its use changes).

An example of how this will proceed for commercial or industrial properties that fall within the scope of reform and transacted after 1 July 2024 is illustrated in the diagram below.

If the property is never transacted, what happens?

People who own commercial and industrial property prior to 1 July 2024 will not be directly affected by this reform (unless 50% or more of the property is transacted after this date). Therefore, if a property was never sold or transferred after 1 July 2024, it will never move to the new regime, and will not trigger CIPT.

That is, going forward, Victoria will have two classes of commercial and industrial properties – those under which CIPT is payable and those which are not. It is likely that this cause owners of pre-1 July 2024 properties to retain their properties in circumstances where they may have otherwise have sold them. For example, we still see this, to this day, for pre-CGT properties.

Can CIPT be passed on to tenants?

CIPT is calculated at the rate of 1% on the properties land value and is charged on top of normal land tax and the absentee owner (foreign) surcharge (if applicable).

While land tax (and CIPT?) cannot be passed on to specific retail tenants, it can be passed on to other commercial and industrial tenants. Likewise, it is possible that CIPT could be passed on to such tenants (we await further information on this).

For landlords who cannot or do not pass on CIPT, this will be another holding expense in relation to the property that will reduce its yield and, in some circumstances, the its feasibility as an investment.

No Bill yet, but further information released by Treasury

We are still waiting for the legislation on the new CIPL regime, so at this stage we can only rely on the information released by the Department of Treasury and Finance, including its information sheet.

The Bill and additional details on the reform process are expected to be released ahead of the 1 July start date.

If you have any further queries about CIPT, or any other State Tax issue, please do not hesitate to contact our State Taxes team.

Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au

Nicholas Clifton
Principal Lawyer
T +61 3 9611 0154 | M +61 401 150 955
E nclifton@sladen.com.au

Meera Pillai
Associate
T +61 3 9611 0179
E mpillai@sladen.com.au