Commercial and Industrial Property Tax Reform

Commercial and

Industrial Property

Tax Reform

INFORMATION SHEET

About the reform

As announced in the 2023-24 Budget, the

Victorian Government is progressively

abolishing stamp duty on commercial and

industrial property and replacing it with a more

efficient annual tax based on unimproved land

value – to be called the ‘Commercial and

Industrial Property Tax’.

A fact sheet was released in June 2023

providing further detail on the intended policy

objectives of the reform, with a commitment to

undertake targeted consultation to inform

development of the final design and transition

arrangements.

The Government has completed its targeted

consultation on the details of this reform with

business and industry leaders.

This information paper provides further detail

on the design of the reform and transition

arrangements, which have been informed by

this consultation.

Guide to this Information

Sheet

This information sheet provides detail on the final

design features of the Commercial and Industrial

Property Tax Reform, including information on the

government-facilitated transition loan. Case

studies are also included to illustrate key reform

features via hypothetical worked examples.

Please refer to the following sections of this

document for further information:

• Expected benefits of the reform and summary

of the reform design– refer to Page 2

• A practical description of the reform in 5

steps – refer to Page 3

• How a commercial or industrial property

enters into the reform – refer to Page 4

• How the Commercial and Industrial Property

Tax will be applied – refer to Page 5

• Key features of the government-facilitated

transition loan – refer to Page 6

• Treatment of mixed-use properties and

complex transactions – refer to Page 7

• The reform’s treatment of properties that

change use – refer to Page 8

• Other further details underpinning the

reform – refer to Page 10

Expected benefits

Currently, when you buy or acquire a commercial

or industrial property in Victoria you pay land

transfer duty, also called stamp duty.

Stamp duty adds to the cost of purchasing

property. When applied to commercial and

industrial properties, it discourages businesses

from investing, expanding, or relocating their

operations – impeding growth and productivity.

Reforming stamp duty has been recommended by

numerous inquiries over recent decades –

including the Henry Tax Review, the Productivity

Commission and the Grattan Institute.

Replacing stamp duty with the Commercial and

Industrial Property Tax will:

• encourage businesses to expand or set up in

the best location, for example closer to their

customers or where there is a growing

workforce

• support businesses to invest in buildings and

infrastructure

• promote more efficient use of commercial and

industrial land.

Put simply, the change means a retailer will be

more likely to buy the new premises they need for

their business to take the next step, or a transport

company will have more reason to move into that

larger warehouse.

By removing a key barrier to more effective

investments, the benefits will multiply across the

economy.

Removing upfront costs on commercial and

industrial property purchases will accelerate

business growth and boost jobs – with the

cumulative increase in the size of the Victorian

economy as a result of this reform up to $50 billion

in Net Present Value terms.

Reform design features

The new tax system will apply to commercial and

industrial property transactions with both a

contract and settlement date on or after

1 July 2024. For these properties stamp duty will be

paid one final time on the property if and when it is

transacted, and the new annual Commercial and

Industrial Property Tax will be payable 10 years

after the final stamp duty payment, regardless of

whether that property has transacted again.

If a property is sold again, stamp duty will not

apply if the property continues to be used for

commercial and industrial purposes.

To smooth the transition to the new tax system, the

Government will give purchasers of commercial or

industrial property (who meet the eligibility criteria

as outlined in this information sheet) the option of

accessing a government-facilitated transition loan

as an alternative to self-financing the upfront

stamp duty amount.

In this way, eligible purchasers who choose the

transition loan option transition to an annual

repayment from the time of purchase – freeing up

capital businesses can use to invest in expanding

and employing more workers.

The Commercial and Industrial Property Tax will be

set at a flat one per cent of the property’s

unimproved land value – with no complicated rate

schedules or thresholds.

The reform will not apply to:

• commercial or industrial property purchased

before 1 July 2024

• properties primarily used for residential,

primary production, community services, sport,

or heritage and culture purposes, as coded by

the Valuer-General.

The reform in 5 steps

Step 1: The reform will commence on 1 July 2024.

People who own residential or primary production

property will not be directly affected. People who

own commercial and industrial property prior to

that date and do not transact will not be directly

affected. (If 50 per cent or more of the property is

sold, it is considered that the property has

transacted).

Step 2: If a commercial/industrial property is

contracted on or after that date, at settlement

a 10-year transition period will commence for that

property.

Additionally, at settlement the purchaser will have

a choice to either:

• pay the property’s final stamp duty liability as

an upfront lump sum; or

• finance stamp duty through a

government-facilitated transition loan,

allowing them to make annual loan

repayments over 10 years – equivalent to the

property’s final upfront stamp duty liability

plus interest.

Step 3: Stamp duty will not be payable on future

transactions of that property, even if it is sold

multiple times within the 10-year transition period, if

it continues to have a commercial or industrial use.

If the property is sold within the 10-year

transition period and the initial purchaser opted

for a transition loan, they will be obliged to make

the remaining repayments prior to settlement of

the sale.

Step 4: The Commercial and Industrial Property

Tax will start 10 years after the initial

transaction, regardless of whether the property

has been transacted since.

The Commercial and Industrial Property Tax will

be set at a flat one per cent of that property’s

unimproved land value. It will be separate from

and in addition to the existing land tax system.

Step 5: After the 10-year transition period, the

property will become liable for the Commercial

and Industrial Property Tax.

As long as the property is used for a commercial

or industrial purpose no stamp duty will be

payable on any transaction, and whoever owns

that property will be liable for the Commercial

and Industrial Property Tax.

Entry into the new tax system

A property will enter the reform if:

• a contract of sale is entered on or after

1 July 2024

• 50 per cent or more of the property transacts

• there is a positive duty liability; and

• it has a qualifying commercial or industrial use

at the date of settlement.

A property is considered to have a qualifying

commercial or industrial use if it meets one of the

following conditions at the settlement date of a

property transaction:

• Property is allocated an Australian Valuation

Property Classification Code (AVPCC) that

represents commercial, industrial, extractive

industries, or infrastructure and utilities land

(included in the 200s, 300s, 400s, and 600s

AVPCC categories) (see Appendix for

further details), or

• Property is qualifying student accommodation

(defined below).

This means the reform will not apply to properties

coded by the Valuer-General as having residential,

primary production, community services or sport,

heritage and culture purposes.

Stamp duty concessions will continue to apply, and

these properties will enter the reform provided

other required conditions are also met. For

example, transfers of qualifying properties which

are eligible for the regional commercial and

industrial duty concession will enter the reform and

will continue to receive a 50 per cent reduction on

their final stamp duty payment.

Commercial and industrial property transactions

that are currently exempt from stamp duty will not

enter the reform. This includes transfers such as:

• Deceased estates

• Transfer between spouse or partner

• Purchases by charities and Friendly Societies.

Subsequent transactions of these properties that

are liable for stamp duty enter the reform and

incur that property’s final stamp duty payment.

For a full list of concessions and exemptions

currently available for stamp duty, please visit the

State Revenue Office website:

https://www.sro.vic.gov.au/land-transfer-duty

The reform will not apply to the following:

• Property primarily used for residential

purposes

• Property primarily used for primary

production, community services or sport,

heritage and culture purposes

• Transfers of commercial or industrial

property that are exempt from stamp duty,

for example a purchase by a charity, a

transfer from a deceased estate, or a

transfer between spouses or partners, and

• Commercial and industrial property

purchased prior to 1 July 2024 (unless 50 per

cent or more of the property is transacted

after this date).

Case Study Example 1 – Entry into the tax reform system (first transaction)

Emma buys a commercial property on 25 September 2024 to set up her business. This transaction will

trigger entry of that property into the reform (as it was contracted and settled on or after 1 July 2024).

At this point Emma can choose to pay stamp duty upfront or opt for a transition loan to pay the stamp

duty, reducing her upfront costs.

If Emma’s property is in a regional area, she will receive a 50 per cent discount on her stamp duty through

the regional commercial and industrial stamp duty concession.

The Commercial and Industrial Property Tax will commence 10 years after her purchase in 2035.

Case Study Example 2 – Buying a property which has entered the reform (subsequent

transactions)

Minh is the owner of a small online business, and purchases a retail premise in October 2030 to expand

their business. This property was previously sold in 2025, at which point it entered into the reform.

Minh would pay no stamp duty on the transaction, freeing up capital to invest in their business.

They would begin to pay Commercial and Industrial Property Tax annually from 2036.

Application of the Commercial

and Industrial Property Tax

The Commercial and Industrial Property Tax is a

replacement for stamp duty, and is separate to

land tax, which will continue to apply. This reform

does not make any changes to existing land tax

arrangements.

For commercial and industrial property that has

transacted since 1 July 2024 and entered the new

tax system, landowners will start paying the

Commercial and Industrial Property Tax 10 years

after the initial transaction.

It will be set at one per cent of that property’s

unimproved land value per annum with no

tax-free threshold.

Existing land tax exemptions will apply to the

Commercial and Industrial Property Tax.

For a full list of exemptions currently available for

land tax, please visit the State Revenue Office

website: https://www.sro.vic.gov.au/land-tax/land-

tax-exemptions

Consistent with land tax, the Commercial and

Industrial Property Tax will not be allowed to be

passed through by landowners to specific retail

tenants identified in the Retail Leases Act 2003.

The Commercial and Industrial Property Tax will

be based on land ownership as at 31 December

following the 10th anniversary of the first

transaction of the property since 1 July 2024.

Administrative arrangements for the Commercial

and Industrial Property Tax will largely align with

those already in place for land tax. Similar to land

tax, you will be able to pay the Commercial and

Industrial Property Tax in a single annual

payment or by instalments.

A stylised example of entry into the new tax system and the assessment timing of the Commercial and

Industrial Property Tax is included in the diagram below.

Transition loan

The Victorian Government will give first purchasers

of a qualifying use

property from 1 July 2024 the

option of accessing a government-facilitated

transition loan to finance the upfront stamp duty

liability on their purchase. This offers purchasers

an opportunity to spread out the upfront cost of

stamp duty over time.

The loan will be available to eligible applicants,

who are:

• Australian citizens/permanent residents or an

Australian business

• the first purchaser of a commercial or

industrial property where settlement occurs for

contracts entered into on or after 1 July 2024

• purchasing property up to a maximum

purchase price of $30 million; and

• approved for finance from an Authorised

Deposit-taking Institution or other approved

lender for the subject property.

The loan will be issued by the Treasury Corporation

of Victoria with a fixed interest rate. The interest

rate will be a commercial market-based interest

rate and calculated at the start of the loan. It will

be equal to the Treasury Corporation of Victoria’s

bond rate plus a credit risk margin (to be finalised

and published in 2024). The same interest rate will

apply to all eligible borrowers at a given time.

Annual loan repayments will in aggregate be equal

to the stamp duty plus interest over a 10-year

period. These amounts will be set upfront to

provide borrowers with certainty and the first

repayment will be due 12 months after settlement.

Early repayment will be allowed but a break fee will

apply.

If the property is subsequently sold or the property

changes to a non-qualifying use the borrower will

be obliged to repay the outstanding balance on

the loan. The loan cannot be novated or

transferred to a subsequent purchaser.

Treasury Corporation of Victoria will have a first

ranking statutory charge over the interest in the

land in relation to the loan. This will be registered

on title to inform prospective purchasers.

Further details on the reform, how to apply for the

loan and the specific terms and conditions of the

loan will be available in 2024.

Case Study Example 3 – Opting for a transition loan

Christos purchases a former car yard in October 2024 to start a car wash business. He opts to take out a

business mortgage via a private bank to finance the purchase of the property.

Christos is eligible for the government-facilitated transition loan to finance his stamp duty. Christos

repays the transition loan in fixed instalments over 10 years. Christos pays the last loan repayment in

October 2034.

From 2035 Christos will pay the Commercial and Industrial Property Tax.

Land in Victoria will have a Qualifying Use where land

is allocated one AVPCC under the Valuation of Land

Act 1960 in the AVPCC ranges of 200-499 or 600-699,

or where the land is used solely or primarily for Eligible

Student Accommodation. Mixed use properties will be

subject to a sole or primary use test to determine

qualifying use.

Mixed-use properties

Some properties will have a mixture of qualifying

and non-qualifying uses across different

occupancies – for example, a street level shop with

a residence above. In some instances, these

properties may have more than one AVPCC, and

they may have a mixture of qualifying and non-

qualifying AVPCCs.

For these properties the sole or primary use test

will be used to determine if the property will enter

into the reform in the event it is transacted and if

the Commercial and Industrial Property Tax will

apply.

If the sole or primary use test indicates that a

property with several occupancies is qualifying, the

Commercial and Industrial Property Tax will apply

to the entire mixed-use property. However,

concessions or exemptions from the Commercial

and Industrial Property Tax may apply to relevant

portions of the property.

The sole or primary use test can be in reference to

factors such as the land or floor area of each use;

the relative intensity, economic and financial

significance of each use, and the length of time of

each use, with ‘primary’ ascertained by the

Commissioner of State Revenue.

If the primary use of the property is determined to

be non-qualifying (e.g. residential), then the

Commercial and Industrial Property Tax will not

apply to the property.

Future transactions of a mixed-use property that is

already in the reform will not pay stamp duty

provided its sole or primary use remains as

commercial or industrial.

Case Study Example 4 – Mixed-use properties

Eva purchases a suburban restaurant with a small loft upstairs on one land title where she lives. She leases

the restaurant to Nicholas.

The sole or primary use test classifies this property as commercial. The property enters the reform after

being transacted for the first time after 1 July 2024, with stamp duty paid one last time. The property

becomes liable for Commercial and Industrial Property Tax after 10 years.

However, given Eva lives in the loft upstairs, a Principal Place of Residence exemption is applied to the

residential portion of the property, reducing her Commercial and Industrial Property Tax to the restaurant

portion of the property only.

After 15 years, Eva sells the property with the same mixed-use. The next purchaser pays no stamp duty and

uses the property in the same way.

Changes in use

A property which enters the reform with a

commercial or industrial use may change to a

different use over time. For example, an industrial

warehouse that has entered the reform could later

be re-developed into residential apartments.

From 1 July 2024, a property owner who purchases

a qualifying commercial or industrial property

pays stamp duty and the property enters the

reform.

If they convert the property to a non-qualifying use

(e.g. residential) and the property continues to be

used for that use as at the liability date for

Commercial and Industrial Property Tax for a given

tax year, they will not be liable for the Commercial

and Industrial Property Tax for that tax year.

Commercial and Industrial Property Tax is not

payable on any property with a non-qualifying use.

If they sell the property whilst it has a

non-qualifying use (e.g. residential) – consistent

with sales of other non-qualifying properties –

stamp duty will be payable.

If a property that has entered the reform is sold a

second or subsequent time with a qualifying

commercial or industrial use, stamp duty would not

be payable on the transaction. However, if this

property is subsequently converted to a non-

qualifying use (e.g. residential) then change-of-use

duty would apply.

Change-of-use duty is intended to apply where no

stamp duty was paid on a recent property

transaction, but the property is also no longer

liable for the Commercial and Industrial Property

Tax. It ensures equitable tax treatment across

different kinds of properties, including those that

change use.

The change-of-use duty will be calculated based

on the stamp duty that would have been payable

when the property was transacted, including any

relevant concessions, but reduced by 10 per cent

for every 31 December that has passed since that

transaction, to a maximum of 100 per cent. For

example, if change-of-use duty was payable seven

years after the property was transacted, then the

change-of-use duty payable would be equal to

30 per cent of the duty that would have been

payable at the time the property was transacted.

Commercial and Industrial Property Tax is not

payable on any property with a non-qualifying use

(e.g. residential). However, if a property in the

reform returns to a qualifying commercial or

industrial use (after converting to a non-qualifying

use such as residential), Commercial and Industrial

Property Tax becomes payable immediately after

the original 10-year transition period has

concluded. No refund on change-of-use duty will

be given if a property returns to a qualifying use.

Property owners will need to notify the SRO within

30 days of any change of use of the property.

Case Study Example 5 – Change of use

A company purchases a small factory in 2025. They use it as a factory for seven years, then in 2032 develop

it and convert it to a residential use as an apartment complex. The apartments are all sold between the

years 2035 and 2040.

The company opted for a transition loan to finance the stamp duty on the initial purchase of the factory in

2025. They met all of the eligibility requirements to access the transition loan, including using the property

for a commercial purpose only. They make seven annual repayments on the transition loan before the use

of the property changed to residential. They must pay off the remaining balance of the transition loan

when they change the use of the property from industrial to residential in 2032.

They never pay any Commercial and Industrial Property Tax as the properties have been converted to

residential property. However, stamp duty will be levied on the sale of the apartments, subject to any

stamp duty concessions or exemptions applying.

A stylised example of the calculation for change-of-use duty is included in the diagram below.

Complex transactions

The majority of property transactions are direct

transfers of 100 per cent of a property. However,

shares of a property can also be transacted, and

there are also indirect forms of transactions.

Where less than 100 per cent of the interest in a

property is transacted, the transaction is referred

to as a ‘fractional interest transaction’.

Fractional interest transactions of 50 per cent

ownership or more will cause the entire property to

enter the reform. The entire property would be

subject to Commercial and Industrial Property Tax

after 10 years and the property would be exempt

from stamp duty on subsequent transactions.

Indirect transactions of property will be captured

by the reform, including landholder acquisitions

(i.e. acquisitions in companies and trusts that

own land).

Certain complex transactions will not trigger entry

into the reform, specifically: transactions eligible

for the corporate reconstruction or consolidation

concession, dutiable leases and economic

entitlements. Properties associated with these

transactions or dutiable sub-sales will only enter

the reform when they are directly transferred via a

standard dutiable transaction (or fractional

interest transaction of 50 per cent or more of the

property).

Anti-avoidance provisions will be put in place to

support the integrity of the reform. Further details

on these provisions will be provided in 2024.

Further details

Subdivided properties: If a property that is in the

reform is subdivided, the child lots will be exempt

from stamp duty if they transact and will be

subject to the Commercial and Industrial Property

Tax 10 years after the initial transaction of the

parent property.

Consolidated properties: Properties that are

consolidated will be subject to the Commercial and

Industrial Property Tax if 50 per cent or more of the

total land area of the parent properties had

entered the reform.

Foreign owners: Foreign owners will be liable for

the Commercial and Industrial Property Tax. Unlike

land tax, there is no absentee owner surcharge on

the Commercial and Industrial Property Tax.

Foreign owners will not be eligible to apply for the

transition loan.

Information for purchasers: Information on

whether a property has entered the tax reform,

including the amount of any outstanding

Commercial and Industrial Property Tax will be

included on the Property Clearance Certificate

issued by the State Revenue Office.

Student accommodation: Student accommodation

will be included as a qualifying use for the purpose

of the reform. Land which is solely or primarily used

as commercial residential premises and that is

used solely or primarily for providing

accommodation to tertiary students will be

considered commercial property. This is consistent

with the definition of a commercial residential

premises in the A New Tax System (Goods and

Services Tax) Act 1999. This definition will exclude

accommodation provided in connection with a

university, such as university colleges.

Further information

Legislation to facilitate this reform is expected to be introduced into Parliament in 2024.

Additional details on the reform will be released ahead of the 1 July 2024 start date.

For further enquiries on the Commercial and Industrial Property Tax Reform, please contact

information@dtf.vic.gov.au

Appendix: Australian Valuation Property

Classification Code ranges included in the reform*

Code Classification

200-299 Commercial

20 Commercial Use Development Land

21 Retail

22 Office

23 Short Term Business and Tourist Accommodation

24 Hospitality

25 Entertainment – Cinema, Live Theatre and Amusements (non-sporting)

26 Tourism Facilities/Infrastructure

27 Personal Services

28 Vehicle Car Parking, Washing and Sales

29 Advertising or Public Information Screens

300-399 Industrial

30 Industrial Use Development Land

31 Manufacturing

32 Warehouse/Distribution/Storage

33 Noxious/Offensive/Dangerous Industry

400-499 Extractive Industries

40 Extractive industry site with permit or reserve not in use

41 Quarry (in use)

42 Mine (open cut)

43 Mine (deep shaft)

44 Tailings Dumps

45 Well/Bore

46 Salt Pan (evaporative)

47 Dredging Operations

48 Other Unspecified

600-699 Infrastructure and utilities (industrial)

60 Vacant

61 Gas or Petroleum

62 Electricity

63 Waste Disposal, Treatment and Recycling

64 Water Supply

65 Transport – Road Systems

66 Transport – Rail and Tramway Systems

67 Transport – Air

68 Transport – Marine

69 Communications, including Print, Post, Telecommunications and Airwave Facilities

* As per the Valuation Best Practice Specifications Guidelines (VBPSG) 2023, Valuer-General Victoria