The Victorian Government has announced a number of revenue measures with the dual purpose of supporting Victorian small businesses with tax concessions and repaying the monumental COVID-19 debt by targeting large and non-resident taxpayers.
Transition from land transfer duty to annual property tax on commercial or industrial land
While the New South Wales Government is looking to wind back its landmark stamp duty reforms on residential properties, the Victorian Government is proposing to replace stamp duty on commercial or industrial land with an annual property tax from 1 July 2024. No legislation has been tabled and the government intends to have broad consultation of the form of these new measures.
There is mixed reporting on the proposed measures with some suggestion that from 1 July 2024, stamp duty on the acquisition of commercial and industrial land will still apply on the very first transaction at the rate of 6.5%. However, a taxpayer will have the option of either paying that amount upfront as a lump sum or be able to elect to defer payment over a period of 10 years with a government facilitated loan (and interest). After the period of 10 years has passed since the "sale" of that commercial or industrial property, an annual property tax will be imposed at a rate of 1% on the unimproved land value of the property. If the property is sold thereafter, then it will not be subject to further stamp duty but will simply incur the annual 1% property tax. Without actual draft legislation, the above is speculative only.
The Victorian Treasurer has said that this measure is intended to allow businesses to be more dynamic and agile by freeing up cash for other purposes.
Further details on how these changes will work, and how these changes will interact with land tax and the future of landholder duty will be made available in due course following consultation.
Harmonise the absentee owner surcharge rate with New South Wales
From 1 July 2024, the absentee owner surcharge rate will increase from 2% to 4% to make it in line with New South Wales. The minimum threshold for non-trust absentee owners will also decrease from $300,000 to $50,000. The minimum threshold for trust owners will remain at $25,000.
Temporary additional payroll tax for large businesses and additional land tax for multiple property owners
The COVID Debt Repayment Plan provides for a temporary and targeted levy that will apply for a period of 10 years.
Large businesses with national taxable wages over $10 million will pay additional payroll tax at a rate of 0.5% and businesses with national taxable wages over $100 million will pay additional payroll tax at a rate of 1% from 1 July 2023. Presumably this additional tax will only be payable on Victorian wages, and exemptions will still apply for hospitals and charities.
From 1 January 2024, the tax-free threshold for general land tax will temporarily decrease from $300,000 to $50,000. We understand the tax-free threshold for trusts will remain the same at $250,000. Fixed charges will apply for landholdings subject to land tax, and these fixed changes can range from $500 (for landholdings valued between $50,000 to $100,000) and $975 (for landholdings valued from $100,000 to $300,000). The land tax rates for landholdings valued over $300,000 will increase by $975 plus 0.1% for both general and trust owners with landholdings valued above the tax-free threshold.
It is expected that these temporary measures will apply until 30 June 2033.
Increase in payroll tax-free threshold for small businesses
The payroll tax-free threshold will increase from $700,000 to $900,000 from 1 July 2024, and subsequently increase further to $1 million from 1 July 2025. A phase-out of the benefit of the tax-free threshold will also be introduced for larger businesses such that the tax-free amount will reduce for each dollar a business pays in wages over $3 million, and businesses with wages over $5 million will not benefit from the tax-free threshold at all.
Harmonise the wagering and betting tax rate with New South Wales
Wagering and betting tax will increase from 10% to 15% of net wagering revenue from 1 July 2024.
Abolish business insurance duty over a period of 10 years
Business insurance duties that apply to public and product liability, professional indemnity, employers’ liability, fire and industrial special risks, and marine and aviation insurance, will be abolished.
Abolition will be achieved by 2033, with the rate of duty, currently 10%, being reduced by 1 percentage point each year from 1 July 2024.
All other forms of insurance duty will remain unchanged.
Increased spotlight in stamp duty compliance
Increased funding to the State Revenue Office Victoria for stamp duty compliance was also announced which is intended to raise several million dollars over the next few years. No doubt this will lead to increased scrutiny and audit activity of stamp duty compliance by the State Revenue Office Victoria in the context of future commercial transactions.