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A major reform to commercial property stamp duty is now in effect in Victoria.
With the financial year 2025 having started today (1 July), several changes to taxation have been implemented that may impact broker clients.
The stage 3 tax cuts have now come into being (with some anticipating these may improve servicing for many home loan borrowers), while in Victoria, stamp duty on commercial and industrial properties is being phased out from today.
Initially proposed during the state budget, the land transfer duty on commercial and industrial properties is now being phased out to an annual property tax known as the Commercial And Industrial Property Tax (CIPT) reform.
The CIPT will apply 10 years after the property is next sold.
Ten years after the entry transaction, CIPT will begin to apply to the property at a flat rate of 1 per cent of the property’s site (unimproved) value each year provided the property continues to have a qualifying use. A reduced rate of .5 per cent applies to build-to-rent land.
Duty will still apply to entry transactions. A duty concession can apply to the entry transaction, such as the 50 per cent concession for a transfer of eligible commercial and industrial property in regional Victoria.
Starting 1 July 2024, the first purchaser of a commercial or industrial property will have the option to either pay the property’s final stamp duty liability upfront as a lump sum or choose fixed instalments spread over 10 years, equivalent to stamp duty and interest, facilitated by a government transition loan.
Pepper Money Limited has been selected to service the CIPT Transition Loan Program in conjunction with Treasury Corporation of Victoria (TCV).
Annual repayments over 10 years will be set upfront, equivalent to the property’s final stamp duty liability plus interest, allowing them to spread out payments over time with a fixed, market-based interest rate, calculated at the start of the loan.
The loan will be secured by a first-ranking statutory charge on the applicable land.
Noting the introduction of the scheme, Mario Rehayem, CEO of Pepper Money, said the company was “proud to be entrusted with such an integral role” in the administration of the new CIPT Transition Loan Program.
“We are leveraging our expertise in credit and loan servicing, along with our in-house purpose-built technology to implement the program. This will include loan establishment, credit assessment, settlement, and ongoing servicing of the transition loans, as well as administration services for TCV,” he said.
Approved applicants will be managed using Pepper Money’s purpose-built technology solutions and experienced customer service teams.
“We welcome and support the reform which aligns to our mission of helping people to succeed, the transition loan spreads payments out over 10 years to help Victorian businesses manage cash flow,” Rehayem said.
“The loan now offers eligible businesses greater opportunity to invest, grow and expand. The capital could be invested in expanding operations sooner, hiring more staff, or simply alleviating some of the pressures businesses are currently facing.”
The reform will reportedly create 12,600 new jobs and boost the Victorian economy by up to $50 billion over the next 40 years, according to the state government.
Rehayem said the CIPT reform was “a major change” to Victoria’s tax system and industry practitioners should be prepared to support their Victorian-based SME clients.
The Pepper Money CEO said: “It’s crucial for finance professionals including brokers, accountants, financial planners, conveyancers, and solicitors to understand the new reform and be capable of articulating the options with their clients.”
Brokers have been generally supportive of the stamp duty changes for commercial property, with financial service director at Inovayt, Marty Vidakovic, saying last year that the move would “certainly pique interest in purchasing commercial property”.
These reforms do not apply to properties primarily intended for residential, primary production, community services, sports, heritage, or cultural purposes.
[Related: Victoria to axe stamp duty on commercial real estate]
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