2024-25 Budget Update: Key changes to Australian state taxes

By Jinny Chaimungkalanont and Mark Peters

New South Wales and Queensland have now delivered their FY 2024-25 Budgets on 11 and 18 June respectively.

The reforms proposed in New South Wales and Queensland are, similarly to those announced in the other recent budgets, relatively modest. The most significant change to the state taxes landscape remain the tax reforms in Victoria which will commence from 1 July this year (see our articles on the new Commercial and Industrial Property Tax).

Below outlines the key budget changes announced to date.

New South Wales:

The key changes in New South Wales include:

• Foreign surcharge purchaser duty: from 1 January 2025, the rate of foreign surcharge purchaser duty will increase from 8% to 9% on acquisition of residential property. When this is combined with the premium rate of general stamp duty which applies to high value residential property, the top rate of duty payable by foreign purchasers will be 16% in total.

Although primarily directed towards acquisitions of single dwellings, there continues to be issues in the administration of the legislation such that commercial residential asset classes, like retirement villages, continue to attract higher rates of duty for foreign commercial operators when compared to domestic operators.

A complex transitional regime has also been included in respect of transactions which may arise pursuant to arrangements entered into before 1 January 2025, including options and share sale agreements.

• Foreign land tax surcharge: from the next land tax year the rate of foreign surcharge land tax will increase from 4% to 5%. This surcharge land tax is imposed in addition to general land tax, but is only imposed on the taxable value of residential land held by the taxpayer.
• Freezing of land tax thresholds: from the 2024 land tax year the thresholds from which land tax (the general threshold) and premium land tax becomes payable will be frozen at the present level: $1,075,000 and $6,571,000.

These thresholds have increased sharply over the past 3 years, so the freezing of these thresholds is likely to bring many taxpayers into the land tax net (or into the higher bracket) for the first time as land prices continue to rise over the coming years. A legislated review of the thresholds must occur on or before 1 June 2027.

• Payroll Tax – General Practices: Medical centres paying wages to contractor general practitioners will receive payroll tax relief:

• for unpaid payroll liabilities prior to 4 September 2024, an exemption from payroll tax.
• from 4 September 2024, a rebate for payroll tax on wages on contractor GPs if the medical centre meets certain bulk billing thresholds.

Queensland:

The Queensland budget, like the New South Wales budget, brings unwelcome changes for foreign landowners in order to fund additional support to first home buyers. In particular:

• Foreign land tax surcharge: the Queensland Government has announced an increase in the surcharge rate of land tax payable in addition to general land tax for foreign companies, trustees of foreign trusts, and absentee persons from 2% to 3% from 30 June 2024. This is calculated by reference to the taxable value of all land held by a foreign person in Queensland and is in addition to the general rate of land tax (up to 2.75%).

The increase is estimated to result in additional taxation revenue of approximately $330m over the next 4 land tax years. With this increase, Queensland’s rate of surcharge land tax remains below that of New South Wales (residential land only) and Victoria (all land), which both have a surcharge rate of 4%. Subject to satisfying eligibility criteria, ex gratia relief will continue to be available for Australian-based foreign entities who make a significant contribution to the Queensland economy and community.

• Additional foreign acquirer duty: from July 1 2024, the rate of additional foreign acquirer duty (AFAD) will increase from 7% to 8%. AFAD is payable on acquisitions by foreign persons relating to residential land. This increase will align Queensland’s rate of additional duty on foreign purchases of residential land with that of New South Wales and Victoria.
• First home buyer concession: changes to the first home buyer concession extend eligibility to established homes with a dutiable value up to $800,000 (up from $550,000 currently). First home buyers will pay no duty on homes valued up to $700,000, and for homes valued between $700,000 and $800,000, receive a partial concession.

The changes also extend eligibility to vacant land with a dutiable value up to $500,000 (up from $400,000 currently). Buyers building their first home on vacant land valued up to $350,000 will pay no duty if they occupy the home constructed on the vacant land within 2 years. A partial concession applies for vacant land valued between $350,000 and $500,000.

• Payroll tax rebate for apprentice and trainee wages: in order to support youth employment and business employing trainees and apprentices, the government has announced an extension of 50% payroll tax rebate for wages paid to apprentices and trainees by 12 months until 30 June 2025.
• Regional discount eligibility for payroll tax: the FY2024-25 budget will see businesses which pay Queensland taxable wages of more than $350 million on an annual basis excluded from the regional discount eligibility criteria. This discount announced in the FY2019-20 budget, offered a 1% discount on the payroll tax rate for regional employers with an ABN registered business address in regional Queensland and with at least 85% of their taxable wages paid to employees located outside South East Queensland.

Victoria

This budget primarily preserves the status-quo, especially given the significant Victorian tax changes of the past three years (including the Windfall Gains Tax and the Commercial and Industrial Property Tax).

The most significant changes are likely to be the new land tax exemption and the lifting of the payroll tax-free threshold. As always, the difficulty will be in the detail, and we should know more about this when the Bill is released.

The Budget papers for 2024-25 include the following tax measures:

• Land Tax: a new land tax exemption for land that is used for social and emergency housing will be introduced. This exemption will also apply to charity-owned land on which social and emergency housing is under development. The exemption will commence from the 2025 land tax year (i.e. on 1 January 2025).

The new exemption is welcome, particularly to the charity sector, given the significant complexities arising from the recent inclusion into the “charities” concession of a requirement that the charity “occupy” the land exclusively for charitable purpose (given the Commissioner’s view in LTA-009 Land Tax – Charity Exemption that land subject to a lease, e.g. residential  leases to social housing tenants, may cease to be occupied by the charity and therefore ineligible for an exemption).

• This new exemption is in addition to the land tax relief currently available (a 50% reduction) with respect to build to rent (BTR) developments which provide social or affordable housing. ‘Social’ and ‘affordable’ housing take their meanings, for land tax purposes, from the Housing Act 1983 (Vic) and the Planning and Environment Act 1987 (Vic). ‘Emergency’ housing is currently undefined, and, based on today’s announcement, there appears to be some overlap between the current BTR land tax relief and the new exemption. See our note on BTR concessions here.

The details in relation to this new exemption are expected to be revealed with the release of the State Taxation Amendment Bill 2024 (Vic) (Bill).

• Payroll Tax: the payroll tax-free threshold will be lifted from $700,000 to $900,000 from 1 July 2024. It will then be raised to $1,000,000 from 1 July 2025. In addition, the payroll tax-free threshold will be phased out for larger businesses. We would expect to see the provisions for the phase-out to be contained in the Bill.
• Insurance Duty: the Government has reiterated its intention to gradually abolish business insurance duties which was announced in last year’s budget. Under the proposal, duties on public and product liability, professional indemnity, employers’ liability, fire and industrial special risks, and marine and aviation insurance, will be phased out over a 10-year timespan (that is, full removal by 2033). The rate of duty, currently 10%, will be reduced by 1 percentage point each year. Victoria has already abolished duty on life insurance. 
• Compliance: funding has been provided to further expand tax compliance programs administered by the Victorian State Revenue Office (SRO), and modernise technology in use at the SRO.

The Treasurer also highlighted the introduction, earlier this year, of the Commercial and Industrial Property Tax Reform Bill 2024 (Vic) (which is currently being debated in the Legislative Council), which will transition stamp duty liability on commercial and industrial property to an annualised levy.

Western Australia

Western Australia has not introduced any significant changes in the revenue space, however, further concessions for stamp duty payable by first home buyers have been a prominent part of the highlighted Budget measures.

The Budget papers for 2024-25 include the following tax measures:

• Stamp duty: the Government has announced an increase in the first home owner transfer duty exemption and concession thresholds to $450,000 (from $430,000) and $600,000 (from $530,000) respectively, to be implemented from 1 July 2024. First home buyers who pay duty on agreements entered into between 9 May 2024 and the policy being implemented will be eligible for a refund as necessary. The existing thresholds for purchases of vacant land by first home buyers (a full duty exemption up to $300,000 and a concessional exemption up to $400,000) remain unchanged.
• Discontinuance of user charge initiative on EVs: Western Australia has decided not to proceed with its planned road user charge on zero and low emissions vehicles, following the landmark High Court decision in Vanderstock v Victoria [2023] HCA 30, which ruled Victoria’s distance-based road user charge applying to low emissions vehicles to be an unconstitutional excise.

Northern Territory

No notable changes.

More to come

The budgets for the remaining States and Territories are expected over the coming months.