Victoria’s COVID Recovery Budget

The most economically significant measure is the proposed gradual abolition of stamp duty on commercial and industrial land to be replaced by a permanent annual property tax. The rate of that tax is set to be 1% of the land’s unimproved value.

To “smooth the transition” to property tax, stamp duty will still be charged on the next transaction of a property from 1 July 2024. At that point, purchasers will be given the option to pay the duty as normal or in instalments over 10 years (with interest). At the expiry of the 10-year period, the property tax would apply. It is expected that the property tax will be levied in addition to existing land tax.

Details of the proposal are yet to be released and the government has indicated that it will consult with industry before implementing the changes from 1 July 2024. For example, it is not clear how this measure would apply to dutiable acquisitions in landholding companies or trusts.

In a reminder of Australia’s federal structure, on the same day that Victoria announced this measure, the NSW parliament introduced a Bill to end their own opt-in scheme to replace duty on certain residential properties with an annual property tax.

The 10% duty currently imposed on certain types of insurance used for business will be reduced by 1% each year over the next decade, until it is no longer imposed.

Businesses with a national payroll over $10 million will pay an additional 0.5% in payroll tax on those wages and a further 0.5% for payrolls over $100 million. This effectively doubles the “mental health and wellbeing surcharge” introduced last year and reverses part of the concessions offered to regional employers in recent years.

From 1 July 2024, the payroll tax exemption for “high-fee” non-government schools will also be removed.  Although the details have not been released, this is expected to affect 110 schools.

Smaller businesses have been given payroll tax relief. From 1 July 2024, the tax-free threshold will increase from $700,000 to $900,000, with a further increase to $1 million the following year.

The benefit of the tax-free threshold will be phased out for “larger business” although the precise threshold and methodology has not yet been released.

Landowners will pay more land tax as a result of the reduced tax-free threshold, dropping from $300,000 to $50,000 for most taxpayers. Trusts that own land already pay a surcharge rate with a lower $25,000 tax-free threshold.

For owners of land with a taxable value between $50,000 and $100,000 a fixed charged of $500 will apply. That increases to $975 for values above $100,000. The land tax rates will also increase by 0.1% for all tax brackets from $300,000 for most taxpayers and $250,000 for trusts.

The government expects to raise $4.7 billion from this measure alone over four years.

The existing land tax surcharge for foreign owners of land will double from 2% to 4%. The drop of the tax-free threshold to $50,000 will also affect the foreign surcharge, effectively increasing the tax further.