The Victorian government has recently released the 2023/24 state budget. Our team of experts has summarised what that means for you.
This year’s Victorian budget walks a precarious tightrope between reigning in high levels of COVID and pre-COVID debt, on the one hand, and facilitating a post-COVID economic recovery in the face of global headwinds on the other. For tax measures, the result is a curious mix of revenue-raising initiatives as well as steps towards more long-term reform.
Budget’s key tax measures
Transition from stamp duty to property tax on commercial and industrial property
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.
Gradual abolition of insurance duty for businesses
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.
Increased payroll tax rates
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.
Reduced payroll tax thresholds
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.
Increased land tax rates and charges
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.
Increased land tax on foreign owners
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.
The payroll and land tax increases are packaged together as the “COVID Debt Levy”. These will be “temporary” in that they are only planned to last for 10 years.
Details for many of the measures announced in the budget are yet to be provided and these will prove to be key to investors’ and businesses’ decisions. If you would like to discuss how these changes will affect you, please contact our team of experts.