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The state government’s move to abolish stamp duty on certain properties could spark more commercial property purchases, a finance broker has said.
As part of the Victorian state budget announcement on Tuesday (23 May), the state will abolish stamp duty for commercial and industrial properties and replace it with an annual property tax in a bid to inject $50 billion into the state economy.
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From 1 July next year, commercial and industrial properties will transition to the new system as they are sold, with the annual property tax to be payable from 10 years after the transaction.
After 1 July 2024, the first purchaser of a commercial or industrial property will have the option to choose to either pay the property’s final stamp duty liability as an upfront lump sum or opt to pay fixed instalments over 10 years equal to stamp duty and interest with a government-facilitated transition loan.
Financial service director at Inovayt, Marty Vidakovic, said the move will “certainly pique interest in purchasing commercial property”, which has grown in recent years.
“From a finance perspective historically shorter loan terms and lower LVRs restricted entry-level commercial purchasers from placing in capital that might be better spent elsewhere in running their business,” Mr Vidakovic said.
But he added that commercial finance has become “much more nimble and relevant in the last four to five years encouraging purchasing in the space”.
“In the past you would only purchase a commercial property if you were well-established with excess capital reserves,” Mr Vidakovic said.
Mr Vidakovic said commercial brokers will be “pivotal in supporting clients” to work out their ongoing costs in alignment with their business goals and plans.
“Numbers tell a story and this could inject a spark that is needed in this sector of the property market,” Mr Vidakovic said.
State budget boost for businesses
The state government hopes the move will provide businesses with more capital to expand operations and hire additional workers and ultimately “boost economic activity, job creation, and overall prosperity”.
Victorian Treasurer Tim Pallas said the changes would remove barriers to larger investments and accelerate business growth.
“Business and industry have told us they want this reform and we’ve listened,” Mr Pallas said ahead of the release of the state budget on Tuesday (23 May).
Weighing in, Victorian Chamber of Commerce and Industry chief executive Paul Guerra said the tax will help businesses “accelerate building upgrades, stimulate investment in commercial property and free up more capital”.
The arrangements will not apply to the current owner of any commercial or industrial property purchased before the middle of next year.
Once a property enters the new system after this time, stamp duty will never again be payable on a transaction and the annual property tax will apply and the annual tax is set at a flat rate of 1 per cent of the property’s unimproved land value.
Alongside the stamp duty reforms, the Treasurer announced it was increasing the payroll tax threshold and abolishing business insurance duty to support business growth.
The current payroll tax‑free threshold of $700 000 will be raised to $900,000 from 1 July 2024, with a further increase to $1 million from 1 July 2025.
“These reforms will save around 26,000 Victorian businesses up to $14,550 per year, and around 6,000 of those businesses will stop paying payroll tax altogether,” Mr Pallas said.
In addition, the rate of insurance duty on fire and industrial special risks, public and product liability, professional indemnity, employers’ liability, and marine and aviation insurance will be reduced by 1 percentage point each year from 1 July 2024.
Mr Pallas said these reforms could save businesses around $3,200 on professional indemnity insurance and $2,400 on fire and other special risk insurance cumulatively over 10 years.
While the state’s budget unveiled a boost for business, there was little towards the residential housing sector and rental market, with a $68 million boost towards homelessness and social housing.
[Related: NSW govt to raise stamp duty threshold]
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