What is it and what do you need to know?
The Victorian Government has announced a reform to its taxation of commercial and industrial property by introducing the Commercial & Industrial Property Tax (CIPT) which will come into effect on 1 July 2024.
The State Revenue Office have advised, “the landmark reform, announced in the 2023-24 State Budget, transitions commercial and industrial properties to a new tax scheme upon their sale. Property owners will be required to pay an annual tax based on 1% of the property’s site value, commencing 10 years after the first eligible transaction.”
What does this mean?
If you are purchasing a non-exempt commercial or industrial property and the contract and settlement date are both on or after 1 July 2024 then the property will enter the reform. Stamp duty will be payable one last time either upfront or by opting for a transition loan. There is then a 10-year transition phase before the property will begin to attract an annual tax of 1% of the unimproved land value, the same value used to calculate land tax.
Why has it been introduced?
The Victorian Government have outlined that the purpose of the reform is to support business investment by removing stamp duty. “Stamp duty adds to the cost of purchasing property. When applied to commercial and industrial properties, it discourages businesses from investing, expanding, or relocating their operations – impeding growth and productivity.”
It is estimated that the value of this reform would be worth $50 billion in net present value terms through encouraging businesses to expand, supporting investment spending and promoting more efficient use of land.
What does this mean for SMSF investors?
Similarly to land tax, property owners will be prohibited from passing the cost on to tenants. This will reduce the net operating income of the property therefore devaluing the property from a mathematical sense. Additionally, SMSF affected property will be unlikely to opt for the transition loan for the final stamp duty payment as the borrowed money would likely be in contravention of regulation 13.14 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SISR).
To read more about the reform, visit the State Revenue Office’s website here: https://sro.vic.gov.au/commercial-and-industrial-property-tax
