On 20 March 2024, the Victorian Government introduced the Commercial and Industrial Property Tax Reform Bill 2024 (Bill) into Parliament. The Bill establishes the new Commercial and Industrial Property Tax (CIPT).
The introduction of the Bill follows the announcement in the Victorian Government’s 2023-2024 State Budget of its intention to progressively abolish stamp duty on commercial and industrial properties and replace it with an annual property tax. The Government released further details of the final design of the new tax in December 2023.
Our previous article on the proposed CIPT regime announced in the 2023-2024 State Budget can be accessed here.
Our comments below are based on the Bill as currently drafted and are subject to it passing through Parliament and into law.
Who will be impacted by CIPT?
CIPT is a comprehensive new tax that will impact a broad range of taxpayers. Buyers and sellers of Victorian land and their advisers will need to be across the key aspects of the regime, whether the transaction is structured as a direct sale and purchase of land or an indirect dealing in land such as by the sale and purchase of shares or units in a land owning entity.
Financiers will also need to be across whether the relevant land is within or outside of the CIPT regime and the extent to which stamp duty may continue to be payable in relation to the relevant land.
From the analysis that follows, it is clear that it will be critical for taxpayers to maintain detailed records of dealings in Victorian land including its use, the timing of any disposals and acquisitions and the different titles for subdivisions and consolidations. Maintaining an audit trail will be fundamental to being able to respond to any investigation by the State Revenue Office (SRO) and to satisfy due diligence enquiries for future transactions.
Differences between the Government’s previous announcement and the Bill
The Government’s previous guidance indicated that once stamp duty had been paid one final time after 1 July 2024, all subsequent transactions of that property would be exempt from duty if the property continued to have a qualifying commercial or industrial use.
However, the Bill contains a different regime. The effect of the Bill is that stamp duty may continue to be chargeable in circumstances where land has entered the CIPT regime through a transaction involving a less than a 100% interest in the land and, following the land’s entry into the CIPT regime, a further transaction occurs in relation to an interest in the land that is different from the interest that resulted in the land entering the CIPT regime.
In these circumstances, stamp duty may continue to be chargeable for a period of 3 years or until duty has been fully assessed on the land, whichever occurs first.
The Bill provides the following example:
Person A acquires a 50% interest in land under a transfer of land which occurs on 1 January 2026. This is a qualifying interest in the land and the dutiable transaction is an entry transaction. Person A acquires another 30% interest in the land on 1 January 2027 under a qualifying dutiable transaction. Person B is the beneficial owner of the remaining 20% interest in the land. On 1 July 2027, Person C purchases the land from Person A and Person B. No duty is chargeable on this tax reform scheme transaction to the extent that the interest acquired by Person C is the same, or substantially the same, as the entry interest for the land (50%) and the further interest acquired in the land (30%). Duty is assessed on the remaining 20% interest in the land acquired by Person C.
When does the CIPT regime commence?
The CIPT regime will commence on 1 July 2024.
However, as discussed in further detail below, the CIPT regime will not apply to dutiable transactions and relevant acquisitions that are made pursuant to an agreement or arrangement that was entered into before 1 July 2024.
Depending on the circumstances, a purchaser may seek to assert that a particular transaction should not trigger entry into the CIPT regime as it was made under an arrangement (such as an option) entered into prior to 1 July 2024. However, there will be occasions where there will be advantages for a taxpayer in entering the CIPT regime as soon as possible. Each case should be considered on its merits taking into account the intentions of the purchaser, including how long they intend to hold the land for and whether there is likely to be any future change of use of the land.
How does the CIPT regime work?
The new CIPT regime applies to land that has a qualifying use under the Australian Valuation Property Classification Code (AVPCC) and certain student accommodation. Examples of land with a qualifying use include retail premises, offices, hotels, motels, factories and quarries. This is discussed in further detail below.
A landowner can determine the classification of a property by referring to the AVPCC set out in the most recent annual rates and valuation notice issued for the property.
Land that has a qualifying use enters the regime on the happening of certain dutiable transactions and relevant acquisitions on or after 1 July 2024 where a qualifying interest of 50% or more in the land is transacted. This is described as an entry transaction.
Once land has entered the CIPT regime it becomes tax reform scheme land and is subject to CIPT after 10 years provided the land continues to have a qualifying use. In other words, CIPT does not commence to be payable immediately upon the land’s entry into the CIPT regime. Instead, there is a 10 year transition period during which the land is tax reform scheme land but there is no annual CIPT liability in respect of that land. The annual CIPT liability only commences after the expiry of the 10 year transition period.
The 50% entry threshold may be satisfied in a single transaction or by the aggregation of various interests in land.
The Bill provides the following example of the operation of the aggregation provisions:
Person A is the transferee under a transfer of land occurring on 1 July 2024 relating to a 35% interest in the land (qualifying dutiable transaction A). Person B is the transferee under a transfer of land occurring on 1 July 2026 relating to a 15% interest in the same land (qualifying dutiable transaction B). Persons A and B are associated persons. The interests they acquired in the land are aggregated and together amount to a qualifying interest. This means qualifying dutiable transaction B is the entry transaction for the land.
CIPT also applies to certain subdivisions and consolidations where the land is already within the CIPT regime.
Once land has entered the CIPT regime, exemptions from transfer duty and landholder duty will apply to eligible subsequent transactions where the land has a qualifying use.
What is the rate of CIPT?
The rate of CIPT is 1% of taxable value of the land, which is the site (unimproved) value of the land. This is the same value used for land tax assessment purposes.
For Build To Rent (BTR) land, the rate is 0.5% of the taxable value. The reduced rate for BTR land only applies to land that is eligible for a concession from land tax or an exemption from the absentee owner land tax surcharge for land tax purposes. This means that the reduced CIPT rate of 0.5% will only be available to the BTR projects that satisfy the strict requirements for the 50% land tax concession under the land tax provisions.
The rate of CIPT is the same for a foreign owner. Unlike land tax which includes an absentee owner surcharge of 4% where the property is held by a foreign owner, no foreign surcharge will be applied on top of the standard CIPT.
Entry into the CIPT regime
Land enters the CIPT regime if any of the following occurs in respect of the land on or after 1 July 2024:
(a) an entry transaction;
(b) an entry consolidation; or
(c) an entry subdivision.
Entry transactions
An entry transaction includes a qualifying dutiable transaction or a qualifying landholder transaction, provided the land has a qualifying use on the date the transaction occurs and the transaction relates to an interest in land that is a qualifying interest (of at least 50%) by itself, or when aggregated with other interests in the land.
A qualifying dutiable transaction includes most forms of dutiable transaction in respect of Victorian land, other than the following:
· The grant, transfer or assignment of a dutiable lease;
· The acquisition of an economic entitlement;
· A dutiable transaction that is eligible for an exemption from duty; and
· A dutiable transaction that is eligible for the corporate reconstruction or corporate consolidation concession.
A qualifying landholder transaction includes any relevant acquisition in a landholder, other than a relevant acquisition that is eligible for an exemption from duty and a relevant acquisition that is eligible for the corporate reconstruction or corporate consolidation concession.
Where an interest is acquired in a landholder for the first time, the relevant acquisition threshold is at least 20% for a private unit trust and 50% for a private company.
Importantly, a dutiable transaction or landholder transaction will not be a qualifying transaction that causes the land to enter the CIPT regime if it occurs pursuant to an agreement or arrangement that was entered into before 1 July 2024.
A transfer of land that is eligible for the 50% transfer duty concession for certain commercial and industrial land in regional Victoria may still cause the land to enter into the CIPT regime. As this provision provides a concession and not an exemption from duty, such a transfer of land is not excluded from being an entry transaction. It also is noteworthy that the AVPCC codes that meet the requirements of a qualifying use for the purposes of the CIPT regime are broader than the AVPCC codes that meet the requirements of a qualifying use for the purposes of the transfer duty concession.
Example 1
Quality Assets Unit Trust owns a number of supermarkets in regional Victoria. On 10 July 2024 it enters into a contract of sale with Growth Enterprises Unit Trust under which Growth Enterprises acquires a 50% interest in a property in Bendigo on which a supermarket is located.
The Bendigo property has an AVPCC code allocated to it of 214.2, which is used for supermarkets. The property therefore has a qualifying use for the purposes of the CIPT regime.
A 50% interest in the property is a qualifying interest for CIPT purposes. Accordingly, the transfer of a 50% interest in the property from Quality Assets to Growth Enterprises is an entry transaction that will cause the property to enter the CIPT regime at the date of the transfer.
The transfer of the 50% interest will still be subject to duty because it is the first transfer of that interest in the property on or after 1 July 2024. The transfer will qualify for a 50% discount in the duty that would be otherwise payable under the concession that applies to transfers of commercial and industrial land in regional Victoria. However, despite the availability of the duty concession, the transfer will still be a qualifying dutiable transaction that is an entry transaction.
If Growth Enterprises were to acquire the remaining 50% interest in the property within 3 years after the property first enters the CIPT regime, it would still have to pay duty on the transfer of that 50% interest to it, at the discounted rate. On the other hand, if it were to acquire the remaining 50% interest in the property more than 3 years after the property enters the CIPT regime, no duty would be payable on the transfer of the remaining 50% interest.
Example 2
Referring to Example 1 above, instead of selling a 50% interest in the property itself, the unitholders in Quality Assets Unit Trust decide to sell 50% of their units in the unit trust to Growth Enterprises.
The sale of 50% of the units is a relevant acquisition in Quality Assets Unit Trust, which is a landholder for landholder duty purposes. Accordingly, as the property has a qualifying use at the date the units are transferred, the transaction is a qualifying landholder transaction, and therefore an entry transaction which causes the property to enter the CIPT regime.
In contrast to the transfer of the 50% interest in the property itself in Example 1, a transfer of 50% of the units in the unit trust that owns the property does not qualify for the duty concession that applies to transfers of commercial and industrial land in regional Victoria. Therefore, Growth Enterprises must pay full duty on the acquisition of 50% of the units in Quality Assets Unit Trust.
Example 3
Capital Developments Pty Ltd owns a vacant block of land in Ballarat. Over the past few years it has gone through the process of obtaining a planning permit for the land which will enable it to be developed for commercial or mixed use purposes.
On 1 August 2024 Office Solutions Pty Ltd enters into a contract of sale with Capital Developments for the purchase of the land with the planning permit in place. Office Solutions intends to construct an office block on the land with some retail premises on the ground level.
The block of land in Ballarat has an AVPCC code of 200 on its most recent rates notice, which is reflective of it being a Commercial Development Site. The transfer of the land to Office Solutions will therefore be a qualifying dutiable transaction, which is an entry transaction that will cause the land to enter the CIPT regime on the date of the transfer.
Unfortunately for Office Solutions, AVPCC Code 200 is not one of the codes that is a qualifying use for the purposes of the transfer duty concession that applies to transfers of commercial and industrial land in regional Victoria. Thus, full duty will be chargeable on the transfer.
Aggregation of interests acquired over time
Aggregation rules may apply to determine whether the 50% qualifying interest threshold is satisfied in circumstances where multiple interests in the same land are acquired over time through qualifying dutiable transactions or qualifying landholder transactions.
The aggregation rules can apply where:
(a) qualifying dutiable transactions occur within a 3 year period and either the transferee under each dutiable transaction is the same person, or the transferees under the qualifying dutiable transactions are associated persons;
(b) qualifying dutiable transactions are aggregated under section 24 of the Duties Act 2000 (Vic). This provision commonly applies to aggregate multiple transfers of land from a vendor to a purchaser where the contracts of sale are entered into within 12 months; or
(c) qualifying landholder transactions occur within a 3 year period, a relevant acquisition is made in the same landholder under each qualifying landholder transaction and the relevant acquisitions are made by the same person or associated persons.
Example 4
Referring to the facts in Example 1 above, instead of acquiring a 50% interest in the Bendigo property owned by Quality Assets under a single transaction, Growth Enterprises only acquires a 25% interest in the property under the contract of sale dated 10 July 2024. Six months later, a separate unit trust within the same consolidated tax group as Growth Enterprises Unit trust enters into a contract of sale under which it acquires a further 25% interest in the property.
As Growth Enterprises Unit Trust and the other unit trust within the same consolidated tax group are associated persons for duty purposes, the two dutiable transactions that occur six months apart would be aggregated for the purpose of determining whether a qualifying interest in the Bendigo property has been acquired.
Accordingly, as the two dutiable transactions amount to a total 50% interest in the property, they would be aggregated to form a qualifying interest in the land for CIPT purposes. As a result, the transfer of the second 25% interest in the land would become the entry transaction that causes the land to enter the CIPT regime.
The same result would occur if, instead of acquiring two 25% interests in the property itself, Growth Enterprises and its associated unit trust were to each acquire 25% of the units in Quality Assets Unit Trust within a 3 year period. The two unit acquisitions would be aggregated to form a qualifying interest in the land, which would also cause the property to enter the CIPT regime on the date the second transaction occurs.
The Commissioner has a discretion to determine that two or more persons are not associated persons under the aggregation provisions in certain circumstances.
Consolidations and subdivisions
An entry consolidation or an entry subdivision can also cause land to enter the CIPT regime.
A consolidation of land will result in the consolidated land entering the CIPT regime if tax reform scheme land and other land are consolidated and 50% or more of the area of the consolidated land is tax reform scheme land.
In these circumstances the consolidated land is deemed to have entered the CIPT regime on the first date that part of the consolidated land entered the CIPT regime.
However, if less than 50% of the area of the consolidated land is tax reform scheme land, then the portion of the land that was tax reform scheme land ceases to be tax reform scheme land.
It will therefore be critical for landowners to keep detailed and accurate records of all interests in land to enable the implications of a consolidation of land to be determined. Depending on the character of the land that is consolidated, the outcome may be the CIPT or stamp duty will be chargeable on a future transaction for the consolidated land.
Example 5
On 1 October 2026, a parcel of land that is outside of the CIPT regime (Parcel 3) is consolidated with two other parcels of land that have previously entered the CIPT regime (Parcels 1 and 2). Parcel 1 became tax reform scheme land on 1 November 2024 and Parcel 2 became tax reform scheme land on 1 July 2025.
The entry date for the consolidated land is the date on which Parcel 1 became tax reform scheme land, being 1 November 2024. That is the date that the consolidated land is deemed to have entered the CIPT regime.
For a subdivision of tax reform scheme land, the date on which the land enters the CIPT regime is the date on which the land that was subdivided entered the tax reform scheme.
The Bill provides the following example:
A parcel of land (the parent lot) enters the tax reform scheme on 1 November 2025. The parent lot is subdivided into four parcels of land (the child lots) on 1 February 2027. The entry date for each child lot is 1 November 2025.
Option of paying the duty upfront or funding it over time through a government funded transition loan
A purchaser of land on or after 1 July 2024 may be eligible for a government funded loan to pay the duty on the transaction that brings the land into the CIPT regime. The eligibility criteria for this transition loan program is to be determined by the Treasurer and is yet to be announced.
It is noteworthy that the Bill makes it clear that there is no obligation for a transition loan to be provided even if the eligibility criteria are satisfied.
The terms of the transition loan will be critical for a taxpayer to determine whether to apply for a transition loan to fund the final duty payment or alternatively whether to fund the duty cost by other means.
Based on the Government’s most recent general non-legislative guidance, a transition loan will be available:
· To an eligible purchaser who is an Australian citizen or permanent resident or an Australian business; and
· Where the purchase price does not exceed $30 million.
The total amount comprising the duty and interest will be required to be repaid over ten annual payments commencing one year after settlement. The Government’s previous guidance stated that a commercial market-based interest rate calculated at the start of the loan would apply to the transition loans, which would be equal to the Treasury Corporation of Victoria’s bond rate plus a credit risk margin. The relevant credit risk margin is not contained in the Bill and is yet to be announced by the Government.
Foreign owners will not be eligible for the transition loan.
Any amounts owing by the borrower under a transition loan are a first charge on the borrower’s interest in the transition loan land
Subsequent dealings in land after it enters the CIPT regime
The Bill contains exemptions from transfer duty and landholder duty that apply once land is tax reform scheme land that is within the CIPT regime.
These exemptions are fundamental to the operation of CIPT. They ensure that once land has fully entered the regime, duty is no longer payable in relation to the land. Instead, the annual CIPT will become payable 10 years after the subject land becomes tax reform scheme land provided the land continues to have a qualifying use. However, duty may continue to apply to parts of the land that have not entered the CIPT regime, for up to 3 years following the initial entry transaction.
The exemptions apply to any tax reform scheme transaction, which includes a transfer of land as well as other dutiable transactions in respect of land. To qualify as a tax reform scheme transaction, the relevant land must be tax reform scheme land and it must have a qualifying use on the date of the dutiable transaction.
For a tax reform scheme transaction, the transaction will be eligible for an exemption from duty in the following circumstances:
· If the transaction occurs at least 3 years after the subject land became tax reform scheme land;
· If the entry interest for the land that is subject to the transaction (including any further interest that was obtained) was a 100% interest; or
· If the land that is the subject of the transaction is the same or substantially the same as either or both the entry interest for the land and any further interest acquired in the land before the tax reform scheme transaction.
Where a relevant acquisition of shares or units occurs in a landholder whose landholdings are comprised wholly or partly of tax reform scheme land, and the land has a qualifying use on the date of the relevant acquisition, the Bill provides for the value of the tax reform scheme land to be excluded from the landholder duty calculation where:
· the relevant acquisition occurs on a date that is at least 3 years after the date of the relevant entry transaction for the land;
· the entry interest for the land was a 100% interest; or
· the entry interest and any further interest acquired before the relevant acquisition amounts to a 100% interest.
Example 6
Company B acquires a 50% interest in land from Company A under a transfer of land that occurs on 1 December 2024. Company C, which is an associated person of Company B, acquires a 25% interest in the same land from Company A under a transfer of land that occurs on 1 July 2025. At that point Companies A, B and C are joint owners of the land in their respective proportions. On 1 November 2025, the joint owners enter into a contract of sale to sell their entire interest in the land to Company D. On 1 January 2026, they each transfer their interest in the land to Company D, which then becomes the sole owner of the land.
The first transfer of a 50% interest in the land to Company B is an entry transaction, which causes the land to become tax reform scheme land that is within the CIPT regime. The subsequent transfer of a 25% interest in the land to Company C will, however, still be subject to duty because it is in respect of a different interest in the land from the initial entry transaction. When Company D takes a transfer of the entire land on 1 January 2026, no duty will be chargeable on this transaction to the extent that the interest acquired by Company D is the same, or substantially the same, as the entry interest for the land (50% acquired by Company B) and the further interest acquired in the land (25% acquired by Company C).
As a result, Company D will be liable for duty in respect of a 25% interest in the land, which is the remaining interest in the land that has not yet been subject to duty for a final time.
The Bill provides the following example in the context of landholder duty:
Person A acquires a 50% interest in a landholder under a relevant acquisition which occurs on 1 September 2025. The landholder holds a 100% interest in land. This relevant acquisition amounts to an interest of 50% in the land which is a qualifying interest, and the qualifying landholder transaction is an entry transaction. Person B holds the remaining 50% interest in the landholder. On 1 January 2026, Person C acquires a 100% interest in the landholder from Person A and Person B. The value of the land holding of the landholder is to be excluded from the calculation of duty to the extent that the interest acquired by Person C is the same, or substantially the same, as the entry interest for the land (50%). The value of 50% of the land is included for the purposes of assessing duty on the relevant acquisition made by Person C.
The Bill also provides the following example in the context of a subdivision:
Person A acquires a 100% interest in land under a transfer of land. This is a qualifying interest in the land and the dutiable transaction is an entry transaction. Person A registers a plan of subdivision to subdivide the land (the parent lot) into four lots (the child lots). Person B acquires the child lots under four transfers of land. No duty is chargeable on these tax reform scheme transactions on the basis that the interests in land acquired by Person B are substantially the same as the entry interest for the parent lot.
When does land have a qualifying use and how will the CIPT apply to a mixed use site?
Land will only enter the CIPT regime if, at the time when the entry transaction occurs, the land has a qualifying use.
Land will have a qualifying use if it has been allocated one or more AVPCC in the latest rates valuation, all of which are in the following ranges – 200 to 499 and 600 to 699.
Land will also have a qualifying use if:
· it has been allocated more than one AVPCC in the latest valuation, one or more of which are in ranges referred to above, and one or more of which are outside those ranges, and
· it is used solely or primarily for a use described in the AVPCC ranges noted above.
It will not always be a straightforward task to determine whether mixed use land is used solely or primarily for a use described in the prescribed AVPCC range.
A similar test currently applies to determining whether land is ‘residential property’ for the purposes of the Foreign Purchaser Additional Duty regime.
We are hopeful that the SRO will provide guidance on how to make this determination, which may include factors such as the comparative area of the land attributable to the various uses and the intensity of the respective uses of the land.
Subject to commercial considerations including the timing of the transaction, taxpayers seeking certainty as to whether mixed use land has a qualifying use may wish to apply to the SRO for a private ruling.
Change of use duty
The owner of land that is within the CIPT regime may be subject to a change of use duty liability in circumstances where:
(a) a full or partial exemption from duty applied to a dutiable transaction under which the owner acquired an interest in the tax reform scheme land or a relevant acquisition in a landholder holding an interest in the tax reform scheme land;
(b) after the subject transaction referred to in (a), there is a change of use of the tax reform scheme land;
(c) as a result of the change of use, the land no longer has a qualifying use; and
(d) at the time of the change of use, where the subject transaction in (a) is a dutiable transaction, the transferee under the dutiable transaction continues to hold an interest in the tax reform scheme land or where the subject transaction in (a) is a relevant acquisition, the land holdings of the landholder continues to include an interest in the tax reform scheme land and the person who made the relevant acquisition continues to hold an interest in the landholder.
Duty is payable on the previous transaction that was fully or partly exempt from duty to the extent that the transferee continues to hold an interest in the land following the change of use. However, the amount of duty is reduced by 10% for each calendar year that has elapsed since the date of the dutiable transaction or relevant acquisition.
An owner of tax reform scheme land must notify the Commissioner of State Revenue if the land or part of the land undergoes a change of use, within 30 days after the change of use.
Example 7
On 1 August 2024, Superior Landlord Pty Ltd takes a transfer of a commercial office building in Prahran. It pays duty on the transfer, which is an entry transaction that causes the land to become tax reform scheme property under the CIPT regime. On 31 March 2025, Tiny Homes Pty Ltd identifies the land as being subject to a new planning scheme that could allow it to be redeveloped into apartments. It makes an offer to Superior Landlord Pty Ltd, which is accepted. On 30 June 2025, the land is transferred from Superior Landlord to Tiny Homes. The transfer to Tiny Homes is exempt from duty because the entire interest in the land was subject to duty when it was transferred to Superior Landlord and became tax reform scheme land.
Between 1 July 2025 and 30 June 2027, Tiny Homes works in the background to achieve a planning permit for the property which allows for it to be redeveloped into apartments, while at the same time continuing to lease it to tenants as commercial premises. On 1 July 2027, Tiny Homes commences the redevelopment works on the land.
Arguably, at the date Tiny Homes commences the redevelopment works, there is a change of use in respect of the property. The use changes from a qualifying use (being office premises) to a non-qualifying use (being a residential development site). Under the Bill, Tiny Homes has an obligation to notify the SRO of the change of use within 30 days after the change of use. If the SRO passes on that notification to the Valuer-General’s office, that could result in a supplementary rates notice being issued in respect of the land which should contain an updated AVPCC allocated to the land due to the change in use.
As a result of the change of use, Tiny Homes becomes subject to a change of use duty liability because the transfer of the land to it was exempt from duty. The change of use duty liability would be equal to the transfer duty that would have otherwise been payable on the transfer of the land to Tiny Homes, arguably discounted by 10% due to the fact that only one full calendar year has elapsed since the date of that dutiable transaction.
Who is liable for CIPT and when does the liability arise?
CIPT is a tax that is imposed each year on all CIPT taxable land.
Helpfully, the timing and assessment provisions for CIPT replicate the current provisions for land tax. As in the case of land tax, a taxpayer is to be assessed for CIPT for a tax year on the taxable value of all CIPT taxable land that the taxpayer owns at midnight on 31 December immediately preceding the tax year.
CIPT is payable by the owner of the land. With some exceptions, the land tax provisions apply to determine the owner of the land.
Unpaid CIPT (including any interest and penalty tax) is a first charge on the land. A property clearance certificate obtained from the Commissioner of State Revenue (Commissioner) will protect a bona fide purchaser for any amount of CIPT (including any interest and penalty tax) in excess of the amount set out in the certificate. Upon application by an owner, purchaser or mortgagee of land, the Commissioner is required to issue a property clearance certificate which will now also:
· disclose if there is any CPIT due and unpaid on the land; and
· include a statement of whether the land is tax reform scheme land and if so, when it became or will become subject to CIPT.
The Commissioner may require a lessee, mortgagee or occupier of the land to pay an amount of CIPT where there has been a tax default and an amount of CIPT (including interest and penalty tax) is unpaid. However, the Commissioner generally cannot recover an amount that is greater than the rent the lessee or occupier is required to pay to the land owner, and the lessee or occupier is entitled to recover that amount from the land owner as a debt or set it off against any money owing to the land owner. These provisions largely replicate the existing provisions that apply to a tax default for land tax.
Is the CIPT regime intended to replace land tax?
No, the CIPT will apply in addition to land tax in respect of commercial and industrial properties that are subject to land tax.
However, if the land is exempt from land tax the land will also be exempt from CIPT. This would include exempt land that is used and occupied by a charity exclusively for charitable purposes and exempt land that is sporting, recreational and cultural land.
Anti-avoidance provisions
The Bill incorporates comprehensive anti-avoidance provisions that apply where the Commissioner considers that a person has participated in a tax avoidance scheme. The provisions may apply where a person has obtained a reduction or exemption from CIPT or where land should, but does not, enter the CIPT regime or become subject to CIPT.
Prohibition on passing on CIPT to renters
The Bill prohibits the terms of a residential rental agreement from requiring a tenant liable to pay or to reimburse any CIPT payable by the landlord and such a provision is void. This prohibition mirrors the existing land tax provisions that prohibit a landlord from passing on land tax to a tenant under a residential tenancy agreement.
Prohibition on apportionment of CIPT between vendor and purchaser
The Bill prohibits the recovery of CIPT from a purchaser under a contract of sale where the sale price is less than $10 million.
This restriction is consistent with changes made in late 2023 that prohibit a vendor from recovering land tax from a purchaser under a contract of sale where the sale price is less than $10 million.
The policy rationale behind these measures is to protect consumers for lower value transactions where the purchaser may not be sophisticated or have the resources to engage specialist legal, financial and accounting advisors.
Additional disclosure required in section 32 statement
The requirement for a vendor under a contract of sale to provide a purchaser with a vendor’s statement in accordance with section 32 of the Sale of Land Act 1962 (Vic) is well known. A statement, signed by the vendor, must be provided to the purchaser before the purchaser signs the contract and must contain various financial matters such as the particulars of any mortgage, charge or taxes that the purchaser may become liable for, and information in relation to the use of the land.
The Bill requires additional financial information to be included in the section 32 vendor’s statement including the following:
· A statement of whether or not the land is tax reform scheme land;
· The AVPCC most recently allocated to the land; and
· If the land is tax reform scheme land, its entry date into the CIPT regime.
Property lawyers and conveyancers will need to be across the new CIPT regime in order to appropriately advise their clients, whether they are acting for a vendor or purchaser of relevant land.
A section 32 vendor’s statement is only prescribed for a direct transfer of land under a contract of sale. A vendor of shares in a company or units in a unit trust is not required by law to provide this information to a purchaser in relation to the underlying land held by the company or trust.
Accordingly, additional due diligence will be required by vendors and purchasers (and their advisers) for all transactions involving Victorian land. Advisers will be looking to their clients for historical information about any previous dealings in the land, including by way of indirect transfers.
Objections and refunds
The basis upon which an objection may be made under the Taxation Administration Act 1997 (Vic) has been expanded to include the CIPT regime.
A taxpayer may object against a valuation made for or on behalf of the Commissioner and used by the Commissioner for the assessment of CIPT.
Also, under the Valuation of Land Act 1960 (Vic), a person who has been given a notice of valuation and who is assessed for CIPT based on that valuation, may object against the valuation noting that a valuation must show the AVPCC allocated to the land. This may be a person other than the owner of the land. The grounds of objection include that the AVPCC allocated to the land is not correctly stated in the notice of valuation or assessment notice. However, an objection to a notice of valuation must generally be lodged within 2 months after the notice of valuation is given, which may not provide the parties to a transaction sufficient time to resolve a dispute as to the qualifying use of the relevant land. It would then be necessary to lodge an objection to the CIPT assessment itself, which will be permitted in a similar vein to an objection against a land tax assessment.
Notification obligations
The introduction of the CIPT regime provides taxpayers with additional notification obligations.
A person who is served with a notice of assessment for CIPT must notify the Commissioner of any error or omission in the notice relating to:
· Any tax reform scheme land owned by the person that has a qualifying use at that time that is not specified in the notice; and
· Any land specified in the notice as not subject to CIPT.
This provision mirrors the equivalent provisions requiring a taxpayer to notify the Commissioner of errors or omissions in a land tax assessment and in relation to windfall gains tax.
As noted above, an owner of tax reform scheme land must also notify the Commissioner if the land or part of the land undergoes a change of use with reference to its AVPCC allocation, including if there is a change that results in land no longer having a qualifying use and where a change results in land having a qualifying use.
Importantly, a taxpayer is liable to pay penalty tax if they fail to comply with their notification obligations.
Key takeaways
Noting the commencement date for CIPT of 1 July 2024, clients looking to invest in commercial or industrial property long term should urgently consider making the acquisition prior to that date. It is not necessary for the transfer of the land to occur prior to 1 July 2024, rather a contract of sale or even a heads of agreement or similar executed before that date may be sufficient to prevent the transaction from being an entry transaction that causes the land to enter the CIPT regime.
For clients looking to invest in the short term, the opportunity to access a government-facilitated loan to pay their duty liability over a 10 year period could be beneficial from a cashflow perspective. The eligibility criteria for the government-facilitated loan will be determined by the Treasurer and are yet to be announced. Clients in that category should look out for that announcement from the Government.
The structure of the CIPT regime is likely to create a two tier market for relevant properties that will come into existence between the period the land enters the CIPT regime and the date the first CIPT liability becomes payable. This may create opportunities for purchasers as well as issues for vendors who are competing against others with land that has a different duty profile. Those properties that have entered the CIPT regime are likely to be more attractive to prospective purchasers because they can be transacted without stamp duty being payable or at a lower duty cost than other properties that are still outside of the CIPT regime.
