Commercial Property Stamp Duty Changes from 1 July 2024

As the market changes, staying on top of those changes is key to making smart decisions. One of the big changes is the end of stamp duty for commercial and industrial properties in Victoria, coming 1 July 2024.

Tick Box Conveyancing is Melbourne’s go-to conveyancing expert. We want our clients to be informed of any changes to the legislation that may impact their property transactions.

Get in the know to navigate the market better and take advantage of the new rules.

What is the Reform

Current System

Stamp duty is a big cost for buyers of commercial and industrial properties in Victoria. This upfront tax is a percentage of the purchase price and can add a significant amount to the initial outlay of buying a property. It can stop many businesses and small—to medium-sized enterprises from expanding or moving to better premises. The high upfront cost can prevent companies from making smart moves that would otherwise support their growth and operational efficiency.

Changes from 1 July 2024

From 1 July 2024, Victoria will abolish the traditional stamp duty system for commercial and industrial properties. This reform will simplify the property transaction process and reduce the cost to buyers at purchase. The new system will only apply to future transactions, so current owners of commercial and industrial properties will only be affected if they sell their property.

What is the objective of the Reform?

The main objective of this reform is to make buying commercial and industrial properties easier and less costly. By reducing the upfront costs of buying property the government hopes to encourage business growth, make relocations easier and promote more efficient use of land. This will stimulate economic activity by making it easier for businesses to invest in new properties and infrastructure.

What’s Changing?

The transition from the current stamp duty system involves several big changes for commercial and industrial properties. Here’s the details:

Key Points of the Reform:

Commencement Date: The reform will start on 1 July 2024. Properties owned before this date will only be affected if sold after this date.
Trigger for Transition: Any commercial or industrial property bought after 1 July 2024 will enter a 10-year transition period.
Payment Options: During the transition period, the buyer will have two options to pay the stamp duty liability:
- Lump Sum Payment: The buyer can pay the total stamp duty upfront.
- Annual Payments: Alternatively, the buyer can pay the stamp duty over 10 years using a government-facilitated loan from the Treasury Corporation of Victoria. The buyer will make loan repayments (principal and interest) in equal instalments over 10 years from the settlement date. This loan will cover the full stamp duty liability. The loan will be secured by a first-ranking charge on the certificate of title.
Multiple Transactions: If the property is transacted again within ten years, no additional stamp duty will be payable, even if the property changes hands many times. However, if the initial purchaser chooses the transition loan option, they will remain responsible for any outstanding repayments.
Annual Property Tax: 10 years after the first post-30 June 2024 transaction, a yearly property tax will be payable on the property. This tax will be a flat 1% of the property’s unimproved land value and separate from and in addition to the existing land tax system.
Permanent Transition: Once the 10-year transition period is complete, the property will permanently move into the new system. From this point on, no stamp duty will be payable on future transactions, and the annual property tax will continue to apply.

Exemptions

There will be some exemptions to this reform. For example, properties involved in corporate restructures or owned by charitable organisations will not be subject to the 10-year transition clock. These exemptions ensure the reform doesn’t impose undue burdens on entities involved in major restructures or philanthropic activities.

New Property Tax Explained

The annual property tax is a big change for commercial and industrial properties in Victoria. Here’s the details:

Annual Property Tax Post-Transition Period

Commencement: The annual property tax will start on 1 July 2024 for any new property purchases after this date.
Calculation: The tax will be 1% of the property’s unimproved land value, which is the value of the site without any buildings or improvements.
Different to Land Tax: Note this new property tax is separate from and in addition to the existing land tax system. The land tax is calculated on the total value of all properties owned by an entity, this new annual property tax will be on individual properties and only on the unimproved land value.

Long-term for Property Owners

Growth and Relocation: The annual property tax reduces the upfront costs of buying a property and is designed to encourage businesses to invest in new premises, relocate closer to their customer base or expand their operations. This will lead to more business activity and job creation.
Predictability: The move from a big one off stamp duty payment to smaller annual payments makes financial planning more accessible for businesses. This predictability will help companies to manage their cash flow better and make strategic decisions.
Mobility: With no stamp duty payable on subsequent transactions within the 10-year transition period, businesses may find buying and selling properties easier as their needs change. This will lead to more efficient use of commercial and industrial land and support business growth.

By understanding these detailed aspects of the new property tax, property buyers and owners can better navigate the upcoming changes and make informed decisions that align with their business goals.

Example Scenario

To better illustrate the transition process and the new payment options available under the reform, let’s consider a practical example:

Scenario: Jimmy Buys a Restaurant

In 2026, Jimmy decides to purchase a restaurant for his growing business. Under the new system, Jimmy has two options for handling the stamp duty liability on his new property:

Lump Sum Payment:
- Jimmy can choose to pay the total stamp duty amount upfront. For his restaurant, the stamp duty is calculated to be $99,000.
- By paying this amount in one go, Jimmy ensures that no additional stamp duty will be payable if he decides to sell the property within the next ten years.
Annual Repayments with Transition Loan:
- Alternatively, Jimmy can opt for the government-facilitated transition loan. This allows him to spread the stamp duty cost over ten years, paying approximately $13,900 annually.
- If Jimmy decides to sell the restaurant after two years, no stamp duty will be due on the transaction. However, Jimmy will still be responsible for the remaining loan repayments.

Impact of the Annual Property Tax

Regardless of the payment option Jimmy chooses, the annual property tax will come into effect ten years after his initial purchase in 2036. This tax will be calculated at 1% of the property’s unimproved land value. For illustrative purposes, if the unimproved land value is $830,000, the annual property tax will be approximately $8,300.

By considering these options and the long-term implications, Jimmy can make an informed decision that best suits his financial situation and business strategy.

Benefits of the Reform

The transition from the traditional stamp duty system presents several benefits that can positively impact businesses and the broader economy. Here are the key advantages of the reform:

Encouraging Business Expansion and Optimal Location Choices

Strategic Relocation: The reduction in upfront costs makes it more feasible for businesses to relocate to locations closer to their customer base or in areas with a growing workforce. This can enhance operational efficiency and customer satisfaction.
Expansion Opportunities: Lower initial costs mean businesses can invest more in expanding their operations, acquiring new premises, or upgrading existing facilities. This can lead to increased productivity and profitability.

Supporting Investments in Buildings and Infrastructure

Infrastructure Development: The reform encourages businesses to invest in buildings and infrastructure by reducing the financial burden at the point of purchase. This can lead to modernised facilities and improved business operations.
Long-term Planning: With predictable annual payments replacing enormous upfront costs, businesses can better plan their investments and manage their cash flow, fostering a more stable economic environment.

Promoting Efficient Use of Commercial and Industrial Land

Increased Mobility: The new system allows businesses to buy and sell properties more freely without the deterrent of additional stamp duty costs. This can lead to more efficient land use as businesses move to locations that best suit their needs.
Economic Growth: The reform can stimulate economic activity by facilitating easier property transactions, creating more jobs and supporting business growth across various sectors.

Practical Impact

Retail Sector Example: For instance, a retailer looking to expand their business can now more easily purchase new premises without the hefty upfront stamp duty. This enables the company to grow, potentially creating more jobs and contributing to the local economy.
Flexibility and Growth: This change encourages businesses to take strategic steps that can lead to larger, more successful operations.

For Buyers and Owners

While there are many benefits, there are also implications for buyers and owners to consider when planning their next move.

Short term financials

Payment Options: Do you pay the stamp duty upfront or take the transition loan and pay it off over ten years? Each option has different cash flow implications.
Immediate Savings: If you pay upfront, you will not have to pay stamp duty on future transactions, which is a big cost savings.

Long term financials

Annual Property Tax: Buyers need to plan for the annual property tax that will start ten years after the initial purchase. While predictable, it’s an additional long-term holding cost.
Strategic Planning: Property owners need to factor this new annual cost into their long-term planning and budgeting.

Impact on Property Market

Market Fluidity: The reform will increase the fluidity of the commercial and industrial property market. With fewer barriers to buying and selling, properties will change hands more often, and the market will be more dynamic.
Property Values: Over time, the transition from a lump sum stamp duty to an annual property tax will impact property values. Buyers and sellers need to consider this when negotiating prices and evaluating opportunities.

What To Think About

Financial Analysis: Buyers must do a full financial analysis to determine which option—lump sum or annual repayments—is best for their situation and business.
Long-term strategy: The decision should be part of a bigger plan that considers future growth, relocations, and investment in property and infrastructure.

By understanding the short-term and long-term implications, buyers and owners can make informed decisions about their business and wealth.

Why Choose Tick Box Conveyancing

The new commercial property stamp duty system can be confusing, but Tick Box Conveyancing is here to help. Our experienced conveyancers offer a range of services to help you make informed decisions and manage your property transactions.

Services offered by Tick Box Conveyancing

Professional Advice: We provide professional advice on the new stamp duty system, helping you understand how it affects you and guiding you through the decision-making process.
Financial Planning: Our experts can help you with financial planning for property investments so you can choose the best option—the lump sum or annual repayment plan.
Property Investment Strategies: We offer customised strategies to help you get the most out of your property investments under the new system, taking into account your long-term business goals and financial position.
Transaction Management: From the initial purchase to any future transactions in the next ten years, we manage all aspects of your property transactions to ensure compliance with the new regulations and smooth transitions.
Ongoing Support: Our commitment to client satisfaction means we provide ongoing support and guidance to help you adapt to future changes and make strategic decisions for your business.

Why Tick Box Conveyancing?

Experience and Knowledge: We have years of experience in the property industry, so we know how to navigate the conveyancing process and provide accurate advice.
Client-Focused: We put our clients first and work with you to understand your financial situation and business goals.
Full Service: Our services cover all property transactions, so Tick Box Conveyancing is your one-stop shop for all your conveyancing needs.

Key Takeaways

Staying informed about legislative changes is essential for making sound investment decisions as the property market evolves. The transition from the traditional stamp duty system for commercial and industrial properties in Victoria, effective from 1 July 2024, presents opportunities and challenges for property buyers and owners.

Key Points Recap

Stamp Duty Reform: The reform begins on 1 July 2024, affecting properties purchased after this date. Current property owners remain unaffected unless they transact their property post-reform.
Payment Options: Buyers can choose between paying the stamp duty upfront or opting for a 10-year transition loan with annual repayments.
Annual Property Tax: After the 10-year transition, a 1% annual property tax on the property’s unimproved land value will be implemented, separate from the existing land tax.
Economic Benefits: The reform aims to encourage business expansion, support investments in buildings and infrastructure, and promote efficient land use.

Understanding these changes and planning can position your business for growth and success. Contact Tick Box Conveyancing for further information and professional guidance tailored to your needs. Our team is ready to help you navigate these changes and make the most of the new opportunities in the commercial property market.

Contact us for via our website more information or call us at 1300 363 165 for a consultation. Let Tick Box Conveyancing be your trusted partner in managing your property transactions under the new stamp duty system.

Frequently Asked Questions

Here are the answers to your questions to help clarify the new stamp duty reforms and address your concerns:

Q: When does the new stamp duty reform start? A: 1 July 2024. Anything purchased after this date will be under the new system.

Q: If I already own a commercial property, will this affect me? A: No, this will not affect current property owners unless you sell your property after 1 July 2024.

Q: How much is the new annual property tax? A: 1% of the property’s unimproved land value, separate to the existing land tax system.

Q: Can I pay the stamp duty upfront? A: Yes, you can pay the stamp duty as a lump sum or opt for annual repayments over ten years through a government-facilitated loan.

Q: What if I sell the property within the 10-year transition period? A: If you sell the property within the 10-year period, no additional stamp duty will be payable on the transaction. However, if you take out the transition loan, you will still be responsible for any outstanding repayments.

Q: Are there any exceptions? A: Yes, properties involved in corporate reconstructions or owned by charities may not be in the 10-year transition period.

Contact us

If you have more questions or need further clarification, feel free to reach out to us.

Contact Information

For personalised advice and expert assistance with your commercial property transactions, contact Tick Box Conveyancing:

Phone: 1300 363 165
Email: info@tickboxconveyancing.com.au
Website: Tick Box Conveyancing Contact Us

Our team is here to help you navigate the new stamp duty system and make informed decisions that align with your business goals. Don’t hesitate to reach out for a consultation and let us guide you through these important changes.