Cutting through the complexities of the Victorian 'Commercial and Industrial Property Tax' Regime

With the 'Commercial and Industrial Property Tax' (CIPT) regime having commenced in Victoria on 1 July 2024, many businesses are unclear as to how it may impact them going forward.

A large part of this confusion comes down to the fact that the CIPT regime is inherently complex.

Consequently, this article is intended to cut through a number of the complexities in order to provide a broad overview of the key features and application.

Key to understanding the CIPT Regime

The key to understanding the regime is that:

1. it only applies to 'Qualifying CIPT Land'; and
2. the 'Qualifying CIPT Land' must have 'entered' the CIPT regime pursuant to an "entry transaction" taking place on or after 1 July 2024.

Entering the CIPT Regime

Qualifying CIPT Land

A core part of the CIPT regime is that it only applies to qualifying commercial and industrial properties (Qualifying CIPT Land).

Essentially Qualifying CIPT Land comprises properties allocated an Australian Valuation Property Classification Code (AVPCC) in the ranges of 200 to 499 (i.e. commercial, industrial and extractive industries) or 600 to 699 (i.e. infrastructure and utilities land).

Examples of such property include offices, warehouses and retail premises.

If a property is allocated more than one AVPCC, which includes an AVPCC outside the aforementioned qualifying range, then it will be deemed to be Qualifying CIPT Land if it is used solely or primarily for one of the qualifying range values.

'Entry Transaction'

Another core element is that the CIPT regime only starts applying to 'Qualifying CIPT Land' once it has 'entered' the CIPT regime on or after 1 July 2024.

Qualifying CIPT Land will 'enter' the CIPT regime to the extent an "entry transaction" takes place in respect of the land on or after 1 July 2024 (i.e. which includes most dutiable transactions and 'landholder duty' transactions).  Though an "entry transaction" also includes certain consolidations and subdivisions.

What this essentially means is that under the current CIPT legislation, if an "entry transaction" never takes place in respect of Qualifying CIPT Land on or after 1 July 2024 then the land will remain outside the CIPT regime – and hence will not be charged with the 'CIPT 1% Charge' (as referred to below).

Importantly, any sale contract in respect of Qualifying CIPT Land which is executed before 1 July 2024 but completes on or after 1 July 2024 will not be treated as 'entering' the CIPT regime at that point in time.

Effect of 'entering' the CIPT Regime

CIPT 1% Charge

Once Qualifying CIPT Land 'enters' the CIPT Regime on or after 1 July 2024 then:

• it will be charged with CIPT at the 1% rate (CIPT 1% Charge) beginning circa 10 years after that "entry transaction" (i.e. '10 Year Transition Period'); and
• the CIPT 1% Charge is calculated based on the site value (and not capital improved value) of the Qualifying CIPT Land.

A reduced rate of 0.5% is chargeable for certain Qualifying CIPT Land which is characterised as 'build-to-rent' land.

The CIPT 1% Charge is separate to, and in addition to, Victorian land tax.

Stamp duty payable

Victorian stamp duty will generally be payable for the last time (subject to certain exceptions) on the first relevant "dutiable transaction" (including 'landholder duty' transaction) in respect of the Qualifying CIPT Land which takes place on or after 1 July 2024 provided that the Qualifying CIPT Land continues to be used for commercial or industrial purposes.  This will typically be the "entry transaction", but not always.

Eligible purchasers of Qualifying CIPT Land which is subject to the aforementioned Victorian stamp duty on or after 1 July 2024 may be entitled to access a Victorian government loan in respect of the duty payable.  Such a loan is provided by the Treasury Corporation of Victoria on commercial terms including a fixed market-based interest rate.

Stamp duty exemption for future dealings in Qualifying CIPT Land

Any subsequent "dutiable transaction" (including 'landholder duty' transaction) involving the Qualifying CIPT Land following that aforementioned first relevant "dutiable transaction" on or after 1 July 2024 will generally be exempt from Victorian stamp duty.

Additionally, no duty will generally be payable following the passing of three years after the "entry transaction" in respect of the Qualifying CIPT Land.

Subsequent 'change in use' – 'exiting' the CIPT Regime

If Qualifying CIPT Land which has 'entered' the CIPT regime changes to a different use outside the qualifying AVPCC range (such as developing the land as residential town houses) then it will 'exit' the CIPT Regime.

There are notification requirements which must be followed to the extent there is such a change in use – and depending on a number of factors, duty could be payable on such an 'exit'.

Re-entering the CIPT Regime

If Qualifying CIPT Land which has 'exited' the CIPT regime subsequently returns to a relevant qualifying use then the Qualifying CIPT Land will 're-enter' the CIPT Regime.

Importantly the 10 Year Transition Period which originally commenced once the Qualifying CIPT Land first 'entered' the CIPT regime is not reset (i.e. there is no new transition period).

Scope of CIPT Regime

It is important to emphasise that the CIPT regime is not an 'opt-in' or 'opt-out' regime or a regime which automatically applies to all Qualifying CIPT Land from 1 July 2024.

Rather, it only applies to Qualifying CIPT Land to the extent an "entry transaction" takes place in respect of that land on or after 1 July 2024 (and the land does not subsequently 'exit' the CIPT regime due to a relevant change in use).  

If no such "entry transaction" takes place in respect of that land on or after 1 July 2024, then the Qualifying CIPT Land will remain outside the CIPT regime and will not be subject to the CIPT 1% Charge.

Authors

Cameron Forbes | Partner | +61 3 8080 3639 | cforbes@tglaw.com.au

Vicki Sharp | Partner | +61 3 9641 8668 | vsharp@tglaw.com.au

Joseph Ip | Partner | +61 3 8080 3710 | jip@tglaw.com.au

Eu Ming Lim | Partner | +61 3 8080 3606 | elim@tglaw.com.au

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