State taxes year in review: 2023

By Jinny Chaimungkalanont, Mark Peters, and Catherine Nguyen

2023 was a year of extensive changes and proposed reforms to State and Territory taxes, with significant impact on a broad range of transactions. The key changes are highlighted below.

Foreign investors: duty and land tax surcharges

All Australian States impose duty and land tax surcharges on the acquisition of residential land by a foreign person (with surcharges extending to other land categories in some cases). There is a question whether these surcharges are inconsistent with international tax treaties that Australia has entered into.

• Revenue NSW announced on 21 February 2023 that the New South Wales surcharge provisions on foreign purchasers and owners of residential land were determined to be inconsistent with the international tax treaties that Australia has entered into with New Zealand, Finland, Germany and South Africa. The list of countries exempt from the surcharge provisions was expanded on 29 May 2023 to include India, Japan, Norway and Switzerland.
• Individuals who are citizens of the affected nations and non-individuals (including corporations, trusts and partnerships) affiliated with those nations are not subject to the surcharge duty and surcharge land tax which apply to other foreign persons. Any purchasers, transferees and owners from the affected nations who have made any surcharge payments after 1 January 2021 are now entitled to a refund of those payments.
• In contrast, the State Revenue Office of Victoria has announced that the Victorian provisions imposing similar surcharges on foreign purchasers and owners will continue to be applied to all such purchasers and owners regardless of their country of citizenship.
• See our previous post on this: here.

Another significant change for foreign investors is the doubling of the Victorian absentee owner surcharge rate, from 1 January 2024. The surcharge rate (which applies to all Victorian land) will increase from 2% to 4%, bringing the Victorian rate in line with New South Wales. See here for more details.

Duty on non-land business assets

Stamp duty on non-land business assets (such as intellectual property, goodwill and customer contracts) has been abolished Australia-wide, with the exception of Queensland and Western Australia.

With effect from 9 May 2023, stamp duty on non-land business assets was abolished in the Northern Territory. Stamp duty is also no longer payable in the Northern Territory on chattels-only transactions, that is, where chattels are transferred with no other dutiable property except a lease or an interest in a lease that has nil or only nominal dutiable value.

See our previous post on these changes: here.

Build-to-rent tax concessions

Numerous Federal and State taxes concessions are available for build-to-rent (BTR) developments to support and encourage the sector. On 17 May 2023, the Western Australian government introduced the Land Tax Assessment Amendment (Build-to-Rent) Bill 2023 (WA), proposing a land tax concession for build-to-rent developments, with similar features to the Victorian BTR concession regime. The Bill has not yet been passed by the Legislative Council.

See our previous post on these proposed changes here, and here for our post on BTR concessions

Significant changes to NSW duty: landholder duty and corporate reconstruction exemption

Significant changes were introduced to NSW duty, notably:

• From 1 July 2023, acquisitions of a “public landholder”, which includes listed companies, listed trusts and certain widely held trusts which have landholdings in NSW with a value of $2m or more, became chargeable with duty at full rates up to 5.5%. Previously, the concessional rate of 0.55% applied. See here our post here for more detail.
• The current full exemption from duty for eligible corporate reconstructions and corporate consolidations will be reduced to a 90% concession. Transactions occurring on or after 1 February 2024 will fall under the new concessionary rules, unless they arose from an agreement or arrangement entered into before 19 September 2023, and an exemption application is lodged on or before 1 April 2024 (and thereafter approved).
• Also from 1 February 2024, the dutiable threshold for acquiring a private unit trust scheme will be reduced from 50% to 20%. Registering a trust as a wholesale unit trust will restore the 50% threshold. Transitional provisions will apply to transactions that arise from an agreement or arrangement entered before 19 September 2023.

See our post on these changes in New South Wales: here.

Victoria plans to abolish duty on commercial and industrial properties

The 2023-24 Victorian Budget announced a major reform to abolish duty on commercial and industrial properties and transition them to an annual property tax.

A further Information Sheet was released by the Victorian government on 11 December 2023 providing the key features of the final design of the regime.

Under the proposed changes, the first purchaser of a commercial or industrial property on or after 1 July 2024 will pay duty. Subsequent transfers of that property will not be subject to duty. After a 10-year transition period, the property will attract the new annual commercial and industrial property tax, at 1% of the property's unimproved land value. Note also the first purchaser on or after 1 July 2024 will have the ability to pay duty as an upfront lump sum, or finance the duty liability with a government-facilitated transition loan, with fixed repayments including interest over 10 years.

The bill that will seek to implement the changes has not yet been released. The release of the bill should clarify numerous aspects of the proposal which remain unclear. See our previous post on the details of the reform: here.

Reforms to various land taxes in Victoria

Other significant changes to land taxes in Victoria were introduced by the State Taxation Acts and Other Acts Amendment Act 2023 (Vic) which received Royal Assent on 12 December 2023.

• The scope of the Vacant Residential Land Tax (VRLT) will be expanded to all vacant residential land in Victoria (rather than only in inner and middle Melbourne) from 1 January 2025. The VRLT will also extend to include certain unimproved land in metropolitan Melbourne effective from 1 January 2026.
• Land tax and windfall gains tax (the latter of which came into operation this year on 1 July 2023) will no longer be able to be apportioned between a vendor and purchaser, starting from 1 January 2024.
• The Valuation of Land Act 1960 (Vic) will be amended to deem certain fixed items to be a fixture, including those which would not otherwise be fixtures under the general law.

See our previous post on the proposed changes in Victoria: here.

High Court holds electric vehicle tax invalid

On 18 October 2023, the High Court handed down its decision in Vanderstock v Victoria [2023] HCA 30 where a majority held that Victoria's Zero and Low Emission Vehicle Distance-based Charge Act 2021 (Vic) was invalid on the basis that it infringed section 90 of the Constitution which grants exclusive excise duties to the Commonwealth.

The decision extended the meaning of excise duties in section 90 to include taxes imposed on goods at any stage in their life cycle, including taxes imposed on the consumption or use of goods, departing from the previous understanding that an excise was a tax imposed on steps up to but not including consumption. This will likely present a roadblock to other States contemplating to impose similar taxes. See our prior post on this decision: here.

The federal Treasury has since published a media release stating that the Commonwealth, State and Territory Treasurers will endeavour to work together on long-term options for zero emission vehicles user charging in light of the decision.