Understanding Australia's Indirect Taxes

Understanding Australia's indirect taxes

In this section, we outline some of the most significant indirect tax considerations for investors into, and businesses operating in, Australia. Broadly, indirect taxes are taxes other than taxes on income that (unlike direct tax) can generally be passed on to another entity or individual (subject to some exclusions). Understanding these taxes is crucial when making informed investment decisions.

Goods and services tax

Australia has a broad-based flat-rate value-added tax of 10% on the supply of goods, services, real property, intangible property and other items. Goods and Services Tax (GST) operates in a similar way to other consumption and value-added taxes in other jurisdictions such as Canada, the United Kingdom, and New Zealand. The taxpayer making the supply will have the GST liability (i.e. must remit the GST to the ATO) if they are registered or required to be registered for GST, and the entity receiving the supply will ordinarily pay an increased amount for the good or service, which reflects the GST liability. However, most GST-registered businesses will be entitled to claim a credit for the GST liability where the good or service is used in the carrying on of an enterprise (subject to certain requirements, exclusions and limitations).

Companies can form GST-groups. Similar to other tax groupings, GST groups allow business entities to operate as a single business for GST purposes. This streamlines compliance and allows transactions within a registered GST group to be ignored for GST purposes.

There are various ‘exemptions’ for supplies that are not subject to GST. These are either ‘GST-free’ supplies (which are not subject to GST but for which the supplier can claim credits for the GST included in their expenses) or ‘input taxed’ supplies (which are not subject to GST but for which the supplier may not be able to claim credits for the GST included in their expenses). These can include:

The sale of a ‘going concern’ – where a transaction involves the sale of an enterprise and the transaction is the supply of all things necessary for the purchaser to continue operating the enterprise, the transaction supply may be GST-free (provided relevant requirements are satisfied).
GST-free supplies – exports, supplies of certain food and medical supplies.
Input-taxed supplies – ‘financial supplies’ (such as loans and shares) and residential real property (other than ‘new residential premises’ and ‘commercial residential premises’.

There are also GST withholding obligations for certain transactions. For example, where an entity makes a supply of new residential premises by way of sale or long-term lease, the purchaser will be required to withhold GST from the purchase price and remit the GST to the ATO, unless an exception applies.

Stamp duty

All Australian States and Territories impose stamp duty on transactions involving certain types of ‘dutiable property’, including interests in land and acquisitions of certain business assets, with specific rules varying across the different jurisdictions. Broadly, ‘transfer duty’ is payable at rates of up to 7% (but usually between 5.15% and 6.5%) plus the foreign purchaser duty surcharge referred to below (if applicable) based on the purchase price or market value, whichever is higher.

Duty is also charged on acquisitions of interests in land-owning companies and trusts, subject to certain thresholds. Duty can also be payable on acquisitions (or deemed acquisitions) of interests in trusts or partnerships that hold (or are taken to hold) dutiable property (which can include intangible assets, such as intellectual property and goodwill).

Broadly, duty is calculated as a percentage of the value of the relevant assets at the same rates as transfer duty.

In each Australian state, there is a duty surcharge for ‘foreign’ purchasers of direct and indirect interests in ‘residential land’ (and primary production land in Tasmania). This can be as high as 9%, although this varies between jurisdictions. The rules also capture some Australian-based entities with overseas investors or connections, and some Australian trusts (in particular) can be deemed to be foreign trusts. Detailed factual analysis may be required. Prospective investors in Australian land should seek advice before making an investment.

If you need help with understanding the potential impact of foreign purchaser duty surcharges on your residential property investment in Australia, seek advice from our team.

Commercial and industrial property tax

Victoria’s new ‘Commercial and Industrial Property Tax’ (CIPT) commenced on 1 July 2024.

Announced by the Victorian Government in its 2023-24 State Budget, the CIPT forms part of its long-term plan to replace stamp duty with an annual property tax.

Broadly, these reforms will apply to introduce the CIPT (a new annual tax) at a flat rate of 1% of the property’s site value. ‘Qualifying’ commercial and industrial properties that are sold (or subject to other relevant transactions) on or after 1 July 2024 will generally become subject to the CIPT. This is known as an ‘entry transaction’. Provided a property retains its classification as a ‘qualifying’ commercial or industrial property, subsequent transactions (after the entry transaction) should generally not give rise to transfer duty or landholder duty.

CIPT will be charged annually with the rate currently set at 1% of the unimproved value (site value) of the land (0.5% for eligible build-to-rent properties) with no tax-free threshold. CIPT will first be payable once 10 calendar years have passed since the relevant entry transaction. CIPT is separate and charged in addition to land tax.

Land tax

Each Australian state and territory (other than the Northern Territory) also imposes a periodic (usually annual) land tax, typically levied on the unimproved value of land.

Although there are various exemptions from land tax, land used for rental income or development, and vacant land, are generally taxable. Some states have land tax incentives for build-to-rent projects (see below).

Similar to stamp duty, most jurisdictions impose a land tax surcharge for ‘foreign’ owners of certain types of land. For the 2025 onwards, the annual surcharge can be up to 5% of the taxable value of land, in addition to the usual annual land tax rates.

The land subject to surcharge tax, and the definition of a ‘foreign’ owner, vary from state to state so it is prudent for prospective investors to seek specific advice.

New South Wales

It had previously been identified in New South Wales that the terms of certain international tax agreements meant that citizens of some countries were not subject to surcharge land tax rates. This is no longer the case, with changes to federal legislation to enable foreign surcharges to apply in respect of citizens from any foreign jurisdiction.

Victoria

From 1 January 2025, Victoria’s significant expansion to its vacant residential land tax (VRLT) came into force, with potential application to vacant residential land anywhere in Victoria.

VRLT applies to taxable residential land that is ‘vacant’, meaning land that has not been used and occupied for more than 6 months of the year (continuous or aggregate), by either the owner or a permitted occupant as their home, or a tenant under a bona fide lease. From 1 January 2026, this will also include undeveloped land in metropolitan Melbourne that has been unimproved for more than 5 years. VRLT is levied at 1% of the capital improved value of the land and will increase by 1% for each year that the property remains subject to VRLT (up to at 3% after three years).

Property owners in Victoria should be aware of how these changes might affect their properties. Penalties can apply if taxpayers do not make required notifications to the Victorian State Revenue Office.

Build-to-rent concessions

Income tax concessions for BTR projects and developments apply in addition to any land tax and duty concessions available at a state level.

State concessions that may be available to eligible BTR properties include:

a 50% reduction in the land value for the purposes of calculating land tax (reducing the overall land tax liability); and
an exemption (or refund) for foreign purchaser duty and foreign land tax surcharges.

There are nuances across each state, with each having different eligibility requirements and timing considerations. For example, a key difference in NSW is that the refund and exemption from foreign land tax and duty surcharges only apply to Australian-incorporated companies (i.e. the 50% land tax concession does not have this limitation). Accordingly, choice of entity type may be a relevant consideration for BTR concession purposes.

It is important to seek specific advice in relation to the state in which you are operating, or propose to operate, to ensure that you qualify for any available concessions.

Windfall gains tax

From 1 July 2023, Victoria’s new windfall gains tax (WGT) came into effect.

Broadlythe WGT operates by charging up to 50% of the ‘taxable value uplift’, where certain changes are made to the planning scheme that governs the relvant land.

Landowners can defer paying the WGT until the land is sold (or another relevant transaction impacts the land), with a maximum deferral of 30 years, although they will also accrue interest at government bond rates. A prohibition against apportionment of any existing WGT liability between a vendor and purchaser applies for contracts of sale after 1 January 2024.

As at May 2025, Victoria remains the only state to have introduced a windfall gains tax, and it remains to be seen whether other jurisdictions will impose a similar tax.

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