The 2023 Victorian state budget comes with significant changes to land tax, payroll tax and stamp duty announced as part of the government's "COVID debt levy" which will apply until 30 June 2033.
New revenue raising measures will be imposed in an attempt to recover the $31.5 billion in debt that the state accumulated between 2019-20 and 2022-23.
The debt levy measures will raise $8.6 billion over the next four years, with an additional $4.74 billion to be raised in the 2024 financial year alone. Changes to land tax are expected to see an additional 360,000 landowners paying land tax.
The changes will impact a significant number of Victorians and Victorian businesses. Business owners should now seek advice on managing the impacts of these changes and reducing tax risk. This is especially the case where taxpayers are seeking to implement or pursue investments, developments and divestments.
We set out the key measures below.
Land tax – temporary tax surcharge and reduced threshold
From 1 January 2024, the tax-free threshold for general land tax rates will be reduced from $300,000 to $50,000.
A 'COVID-19 debt temporary surcharge' will apply in addition to existing land lax:
- a $500 flat fee will apply for taxable landholdings between $50,000 and $100,000
- a fixed fee of $975 will apply to taxable landholdings between $100,000 and $300,000
- for taxable landholdings above $300,000, a $975 fixed surcharge will apply and an increased rate of land tax by 0.10 per cent of the value of the landholdings
- for a trust over $250,000, a flat $975 fee will apply and an increased rate of land tax by 0.10 per cent of the value of the landholdings.
These changes are estimated to raise $4.74 billion to repay COVID debt over four years and will impact 860,000 taxpayers, with the lower land tax threshold predicted to capture an additional 360,000 new taxpayers of whom have not previously been required to pay land tax.
People will smaller landholdings will feel the biggest impact from the threshold drop.
The existing land tax exemptions will continue to apply. Properties already exempt from land tax include principal places of residence, farmland, retirement homes and land owned by charities or religious institutions.
For example, under the new changes, the land tax payment for the owner of an applicable property with an unimproved land value of $1 million will rise from $2,975 to $4,650. For a $10 million property, the fee will increase from $206,475 to $217,150.
The absentee surcharge is an additional amount that is charged on the land tax you pay at general. Trust surcharge rates are charged if you are an absentee owner, corporation or trust.
From 1 January 2024, the rate of the Absentee Owner Surcharge will increase from two per cent to four per cent. The minimum threshold will also reduce from $300,000 to $50,000 – but the minimum threshold will remain the same for trusts.
Builder insolvencies extension
From January 1 2024, if you are affected by builder insolvencies, the Commissioner of State Revenue can extend the land tax exemption for an additional two years for your principle residence that is undergoing construction or renovation.
Payroll tax – temporary payroll tax surcharge and increased threshold
Additional payroll surcharges proposed by the budget are estimated to raise $3.9 billion to repay COVID debt over four years.
The changes are as follows:
- from 1 July 2023, a temporary payroll tax surcharge will apply on wages paid by businesses with national payrolls over $10 million annually
- the surcharge rate of 0.5 per cent will apply for businesses with national payrolls above $10 million. Businesses with national payrolls above $100 million will pay an additional 0.5 per cent
- from 1 July 2024, the payroll tax-free threshold will increase from $700,000 to $900,000. This threshold will increase to $1 million from 1 July 2025.
Businesses with taxable wages under $10 million per annum will not be subject to the levy.
There is some respite on payroll tax – with an increase in the tax-free threshold from $700,000 to $900,000 from 1 July 2024 and $1 million from 1 July 2025. There will be no tax-free threshold for businesses with wages in excess of $5 million.
Independent and private schools
In addition to the measures above, the budget removed payroll tax exemptions for high-fee non-government schools from 1 July 2024. Approximately 110 schools (15 per cent of schools) will lose their exemption.
The impact of payroll tax will likely be significant on non-government schools who may have to pass this on in fee increases. Independent schools who are affected may wish to review their arrangements (in particular with contractors they engage) and are encouraged to seek advice early.
Stamp duty or property tax
From 1 July 2024, stamp duty on commercial and industrial properties will be abolished and replaced with an annual property tax.
The stamp duty liability will still exist. However, the method in which this is paid by a purchaser will be a choice between two options.
The 'first purchaser' of commercial and industrial properties sold on or after 1 July 2024 will have the choice to either:
- elect to pay the property's final duty liability upfront as a lump sum; or
- pay an annualised fixed duty payment/instalment over a period of 10 years (plus interest) (funded by a government-facilitated transition loan). The property tax will be one per cent of the unimproved value of the property.
This will partly offset the higher land tax imposts for some owners. However, these arrangements will not apply to the current owner of any commercial or industrial property purchased before 1 July 2024. Residential properties have been expressly excluded from this change.
Media reports suggest that the state government has also refused to rule out imposing a new tax or levy on landlords who let their properties via short-term rental platforms like Airbnb.
The prospects of an 'Airbnb tax' should be taken seriously by taxpayers operating short-term rentals, following the Australian Taxation Office's recent announcement to crackdown on taxpayer claims for expenses and deductions.
How can we help?
Our tax team is well-placed to assist you and your clients with advice regarding compliance with tax obligations, direct and indirect implications on existing or proposed investments and developments, and identifying and making required changes in light of the latest announcements, applications for rulings, and managing audits and engagements with the ATO.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.