The Commercial and Industrial Property Tax (CIPT) is a major change to the way commercial and industrial property is taxed in Victoria. Introduced on 1 July 2024, the new regime is designed to gradually replace upfront stamp duty on commercial and industrial property transactions with an ongoing annual property tax.
CIPT is essentially a “land tax-like” levy on commercial and industrial land that has “transitioned” into the new scheme.
In broad terms, when an eligible commercial or industrial property is sold or otherwise enters the scheme, stamp duty is still paid on that first qualifying transaction. However, once the property has entered the CIPT regime, future qualifying transfers of the property may be exempt from stamp duty.
The annual CIPT does not start immediately. Instead, it begins after a 10-year transition period. Once that period ends, the owner will generally pay an annual tax equal to 1% of the property’s site (unimproved) value. A concessional rate of 0.5% applies to certain eligible build-to-rent developments.
For example, if you purchase a qualifying warehouse in 2025, you may pay stamp duty on that purchase. The property then enters the CIPT regime. If you sell the warehouse a few years later, a future purchaser may not have to pay stamp duty because the property has already transitioned into the new system. Assuming the qualifying use continues, CIPT would start to apply 10 years after the original entry transaction.
Importantly, CIPT only applies to properties with a qualifying commercial or industrial use. Whether a property qualifies is generally determined by its valuation and classification. Retail premises, offices, warehouses, factories and some vacant commercial or industrial land commonly fall within the regime.
As the regime is still relatively new, there is some uncertainty about how the market will respond. Property owners should remember that CIPT is separate from land tax, meaning a property may be liable for both.
Owners and purchasers should also consider the long-term financial impact of the new tax. Future annual tax liabilities may affect how properties are valued, financed and marketed. While some buyers may view the removal of future stamp duty as a benefit, others may be concerned about the ongoing tax burden. How these competing factors influence property values remains to be seen.
Given the complexity of the regime and its long-term implications, anyone considering the purchase, sale or redevelopment of commercial or industrial property should seek legal and taxation advice early from our taxation lawyers who are well versed in the new regime. Careful planning now can help avoid unexpected costs and complications in the future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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