2023-24 Budget Update: Key changes to Australian state taxes

By Jinny Chaimungkalanont, Mark Peters, Dan Miles, and Jonathan Wu

After the Northern Territory kicked off the State and Territory budget season on 9 May (see our note below and our original post here), Victoria and Western Australia have now also delivered their 2023-24 budgets.

The Victorian government has today (23 May 2023) announced significant stamp duty changes, which will eventually see industrial and commercial landowners pay an annual property tax instead of lump sum stamp duty. The property tax will be set at 1% of the property’s unimproved land value, and the changes are proposed to take effect from 1 July 2024. The Victorian government also announced a number of other revenue measures, including the abolition of business insurance duty, and the ‘COVID Debt Levy’, which will see additional payroll tax and land tax levied.

Victoria’s proposed transition from stamp duty to a property tax follows the stamp duty reforms announced and enacted by the New South Wales government in 2022, which the Minns government has moved to abolish this week (instead, proposing to lift the residential duty exemption threshold from properties with a dutiable value of $650,000 to $800,000, and to introduce a concession for properties with a dutiable value of up to $1 million). The New South Wales government has today (23 May 2023) introduced the First Home Buyer Legislation Amendment Bill 2023 into Parliament.

Additionally, in the week following the budget, the Western Australian government introduced the long awaited Land Tax Assessment Amendment (Build-to-Rent) Bill 2023 (WA) into Parliament. The proposed concession bears strong similarities to the existing build to rent land tax concession in Victoria.

Victoria

Annual property tax to replace stamp duty on commercial and industrial properties

Significant Victorian stamp duty changes were announced as part of the Victorian Budget for 2023-24. Under the proposed changes, when commercial and industrial properties are first sold on or after 1 July 2024, that ‘first purchaser’ will be able to choose to:

• pay the property’s final duty liability as an upfront lump sum; or
• pay fixed duty instalments over 10 years (plus interest).

The new annual property tax (set at 1% of the property’s unimproved land value) will become payable on a property after a 10 year transitional period, which begins on the date of the first disposal of the property on or after 1 July 2024 (meaning that the earliest date on which the new tax could become payable is 1 July 2034).

Once a property has transitioned to the new system, duty will no longer be payable on a sale of that property.

The changes will not apply to owners of industrial or commercial property who acquire their interest before 1 July 2024.

The Bill that will implement the annual property tax has not yet been released. The budget papers indicate that further announcements are to be made by the end of 2023. We will provide a further update when the Bill is released.

There are many unanswered questions:

• It is not clear what the ‘trigger event’ will include, to bring relevant property into the property tax regime: for example, where properties are transferred after 1 July 2024 under a corporate reconstruction or a change of trustee concession, become subject to an economic entitlement arrangement, or where a landholder duty acquisition occurs.
• Query the position of the first purchaser after 1 July 2024, who will effectively pay duty as well as the annual property tax after a 10 year transitional period.
• The treatment of commercial residential properties will also need to be considered.
• The extent to which landholder duty will continue to apply to acquisitions in landholding companies and unit trust schemes which hold landholdings which are either wholly or partly subject to the new annual property tax.
• Finally, whether the new annual property tax will ultimately be expanded to include residential property remains to be seen. Given that duty revenues are forecast to rise by 8.4% per year over the forward estimates,^[1] and the government’s focus on reducing debt incurred during the height of the COVID pandemic by 2033, it may be some time before we see changes to residential duty.

Other changes

The government also announced the following state revenue measures:

• Doubling of land tax absentee owner surcharge rate: From 1 January 2024, the land tax absentee owner surcharge will be increased. The surcharge rate will increase from 2% to 4%, and the tax-free threshold for non-trust absentee owners will decrease from $300,000 to $50,000. This will align Victorian and New South Wales rates.
• Land tax: As part of the COVID Debt Levy, from 1 January 2024, the tax-free threshold for general land tax rates will decrease from $300,000 to $50,000. A temporary fixed charge of $500 will be levied on taxpayers with landholdings with taxable values of $50,000 to $100,000, and a temporary fixed charge of $975 will apply to taxpayers with landholdings with taxable values of $100,000 to $300,000. For general taxpayers with property holdings with taxable values of above $300,000 (and trust taxpayers with property holdings with taxable values of above $250,000), land tax rates will temporarily increase by $975 plus 0.1% of the taxable value of their landholdings above $300,000. This applies until 30 June 2033.
• Payroll tax: From 1 July 2024, the payroll tax free threshold will be lifted from $700,000 to $900,000, and from 1 July 2025, the tax-free threshold will be lifted to $1 million.
• As part of the COVID Debt Levy, from 1 July 2023, employers with national payrolls above $10 million per year will pay additional payroll tax. A rate of 0.5% will apply for employers with national payrolls above $10 million, and employers with national payrolls above $100 million will pay an additional 0.5%. The additional rates will be paid on the Victorian share of wages above the relevant threshold. This levy will apply until 30 June 2033.
• In addition, also from 1 July 2024:
  • the tax free threshold will ‘phase out’. This will result in the tax-free amount reducing for each dollar an employer pays in wages over $3 million. Employers with wages over $5 million will not benefit from the tax-free threshold; and
  • approximately 110 non-government schools will lose their payroll tax exemption.
• Business insurance duty abolished: Business insurance duty (which applies to public and product liability, professional indemnity, employers’ liability, fire and industrial special risks, and marine and aviation insurance) will be abolished. This will occur over a 10 year period. The duty will be abolished by 2033, with the rate of duty, currently 10%, being reduced by 1% each year from 1 July 2024. Victoria has already abolished insurance duty on life insurance.

New South Wales

The New South Wales government has today (23 May 2023) introduced the First Home Buyer Legislation Amendment Bill 2023 into Parliament, ahead of the NSW Budget being handed down (currently proposed to be Tuesday 19 September 2023). The bill proposes to introduce the following key changes:

• Residency requirement increases to 12 months: Increasing the time required for a person to reside in a home as the person’s principal place of residence to be eligible for a first home duty exemption or concession from 6 months to 12 months.
• Increase threshold for first home exemptions: Increasing the residential duty exemption threshold from properties having a private dwelling built on them from a dutiable value of $650,000 to $800,000. The threshold for vacant blocks of residential land remains unchanged at $350,000.
• Increase threshold for first home concessions: Increasing the threshold for a residential duty concession for properties having a private dwelling built on them from a dutiable value of $800,000 to $1 million. The threshold for vacant blocks of residential land remains unchanged at $450,000.
• Abolition of the opt in property tax for future transfers: amending the Property Tax (First Home Buyer Choice) Act 2022 such that transfers of land on or after 1 July 2023 (except those made pursuant to an agreement entered into before 1 July 2023), are not eligible to opt in to pay property tax.

It will be interesting to see the progress of this Bill, noting the NSW Coalition’s commitment to blocking the repeal of property tax (and by implication, the introduction of the updated thresholds).

Western Australia

The Western Australian Budget for 2023-24 continued to deliver a strong fiscal result with a $3.3b surplus. No significant state tax reform was announced as part of the budget.

In the week following the budget, the Western Australian government introduced the long awaited Land Tax Assessment Amendment (Build-to-Rent) Bill 2023 (WA) into Parliament (this reform was first proposed in last year’s budget - see our note here). The proposed concession bears strong similarities to the existing build to rent land tax concession in Victoria. To qualify for the exemption, which if the bill is passed will be available from the 2023-24 assessment year, a development must:

• contain at least 40 self-contained dwellings available for residential leases;
• be owned by the same owner or group of owners, and be managed by the same management entity; and
• be completed between 12 May 2022 and 1 July 2032.

We will provide a further update on the build to rent land tax concession as the legislation proceeds through the Western Australian parliament.

Northern Territory

Coinciding with the Federal Budget, the Northern Territory was the first of the States and Territories to deliver its FY2023-24 budget. The NT budget brings significant red tape reduction to businesses with a connection to the Territory, with the abolition of stamp duty on the conveyance of non-land property, except for chattels conveyed with an interest in land. NT stamp duty will also be abolished on chattels conveyed with a lease that has nil or nominal dutiable value.

The Stamp Duty Amendment Bill 2023 (NT) was introduced to the NT Parliament this morning and will bring significant changes to the imposition of stamp duty in the Territory. The key changes include:

• Business Sale Duty: Largely abolishing stamp duty on business sale agreements by removing from the definition of dutiable property:
  • goodwill;
  • business names, trading names, and trade marks;
  • rights to use things, systems and processes in the Territory that are the subject of a patent, a registered design, or copyright;
  • information and technical knowledge connected with a business undertaking in the Territory;
  • patents, registered designs, and copyright;
  • Commonwealth or Territory statutory licenses or permissions (noting that mining tenements and petroleum interests remain subject to duty as part of the extended definition of land).

These changes will result in a significant red tap reduction as it is quite common in the case of large scale business transactions for there to be a limited connection to the Territory which could give rise to a lodgement obligations. It will also mean that certain IP and trade mark transactions (e.g. the grant or transfer of an IP licence in respect of a NT business) will not be chargeable with duty.

It is clear that the administrative burden both on the Territory Revenue Office and on taxpayers far exceeded the revenue derived with the anticipated budgetary impact of this change to result in revenue forgone of $3 million per annum from 2023-24.

The changes also extend to abolishing duty on franchising arrangements.

• Exemptions for Chattels Only Transactions: Introducing a new exemption from stamp duty so that the transfer of chattels in the Territory will not be subject to duty if the only other dutiable property the subject of the same transaction is a conveyance or grant of a lease, or an interest in a lease, for nil or only nominal dutiable value.

The inclusion of this exemption will ensure that duty is only imposed on the transfer of chattels in the Territory if a substantive interest in land / an option to purchase land is also conveyed / granted.

Duty should not be payable on the usual acquisition of a business, where the only land interest is a lease on usual commercial terms and the lease has nil or nominal dutiable value.

• Grant of Resource Interests: Clarifying the exemption from duty on the grant of a “resource interest” (being, a mining tenement or a petroleum interest (both further defined terms)) so that duty is not payable where the grant of a resource interest occurs unless, in the opinion of the Commissioner, the grant forms part of a wider transaction amounting in effect to a transfer of the resource interest.
• Surrenders of Property: Confirming that certain surrenders of property will continue to be subject to duty. For example, the surrender of an easement in order to allow the same easement, or a substantially similar easement, to be granted to a third person will continue to be subject to duty.

If ultimately passed, the changes will be deemed to take effect from 9 May 2023.

These changes bring the NT in line with most other jurisdictions which have abolished duty on non-land business assets. Such duty remains payable only in Queensland and Western Australia.

More to come

The budgets for the remaining States and Territories are expected over the coming months with Queensland and South Australia expected in the week commencing Monday, 12 June and Tasmania expected on Thursday this week.

[1] Noting that duty revenues are estimated to have accounted for 26.5% of the government’s total taxation receipts for 2022-2023.