Victorian CIPT Expansion and State Taxes Reforms

On 29 October 2024, the Victorian Government proposed a suite of amendments to existing taxation acts as part of the State Taxation Further Amendment Bill 2024 (the Bill). The Bill and explanatory notes can be viewed here.

Key changes proposed include:

• Further duty exemptions for land in the Commercial and Industrial Property Tax (CIPT) Scheme. The Bill exempts from duty transactions concerning leases, fixtures or economic entitlements relating to land which has already entered the CIPT Scheme, where duty was paid on the full value of land upon entering the scheme. In cases where full duty has not been paid, the Commissioner will have the discretion to fully or partially exempt from duty subsequent transactions in relation to that property. There are equivalent provisions for landholder duty.
• Reinforcement of existing Foreign Purchaser Additional Duty (FPAD) and Absentee Owner Surcharge (AOS) provisions through additional taxes. The new taxes address the risk that existing FPAD and AOS provisions are invalid due to their inconsistency with the International Tax Agreements Act 1953 (Cth), which gives force to certain non-discrimination clauses in international tax treaties. The new taxes will apply retrospectively to impose replacement FPAD and AOS from 1 January 2018 onwards, if the current provisions are found to be invalid in their application to certain taxpayers. They do not create additional liabilities for taxpayers who have already paid or are liable to pay FPAD and AOS.
• A new land tax exemption for charitable housing providers. The exemption will apply to housing owned or managed by a charitable institution and provided to occupants for the relief of poverty, from the 2025 land tax year. It will also extend to vacant land owned by charitable institutions and declared to be held for such future use and occupation.

In addition to these changes, other amendments to payroll tax for bulk-billing GP practices, and various minor tax exemptions have been proposed. These are summarised in further detail below.

The Bill is expected to pass later this year.

Additional Commercial and Industrial Property Tax (CIPT) exemptions

Earlier this year the CIPT came into effect, replacing stamp duty on subsequent transactions concerning commercial and industrial properties which have entered the CIPT scheme and continue to qualify for it (CIPT Land).

It was intended that stamp duty be payable for a final time in relation to these properties, on the transaction which enters them into the CIPT Scheme (the entry transaction) (subject to exceptions where an interest of more than 50% but less than 100% is transacted). Currently, subsequent transactions in relation to dutiable leases (i.e. a lease where consideration has been paid in respect of the grant or transfer of the lease, or for certain valuable rights associated with freehold ownership granted under the lease), fixtures, economic entitlements or dutiable goods remain subject to duty, even when they relate to CIPT Land.

The Bill addresses this gap by proposing amendments to the calculation of stamp duty and landholder duty in relation to certain subsequent transactions.

The following transactions are defined in the Bill as ‘non-standard transactions’:

• the grant of a dutiable lease over CIPT Land;
• the transfer or assignment of a dutiable lease over CIPT Land;
• the surrender of a dutiable lease over CIPT Land;
• a dutiable transaction that relates to fixed items located on CIPT Land; and
• the acquisition of an economic entitlement in relation to CIPT Land.

Non-standard transactions are exempt from duty if:

• either:
  • 3 years have elapsed since the land entered the CIPT scheme and the date on which a contract or other agreement or arrangement for the non-standard transaction is entered into; or
  • the entry transaction related to a 100% interest in the land or the aggregate interests which have transacted in the land amount to 100%; and
• duty was paid on the unencumbered value of the land:
  • including fixed items located on the land at the time of entry and at the time of any subsequent dutiable transactions; and
  • which was not reduced by an economic entitlement in relation to the land or any lease at the time of entry and at the time of any subsequent dutiable transactions.

Where neither exemption applies the Commissioner will have the discretion to exempt or reduce duty payable on non-standard transactions. In determining what is appropriate, the Commissioner must have regard to:

• the quantum of the entry interest and any further interests acquired in the land;
• the extent to which the value of the land was reduced due to other interests (eg leases or economic entitlements), or excluded fixtures, when duty was assessed on the entry transaction;
• the period of time between certain specified transactions concerning the land; and
• any other matter the Commissioner considers relevant.

Similar provisions apply to landholder duty.

The Bill additionally exempts from duty transactions concerning goods that are the subject of an arrangement which involves an exempt subsequent transaction under the existing CIPT scheme.

Foreign Purchaser Additional Duty (FPAD) and Absentee Owner Surcharge (AOS)

The FPAD, under the Duties Act 2000 (Vic), and AOS, under the Land Tax Act 2005 (Vic), impose upon foreign owners of land in Victoria additional taxes on the transfer of residential land and ownership of any land, respectively.

Earlier this year, foreign taxpayers from certain countries commenced a class action lawsuit alleging that the FPAD and AOS are invalid due to their inconsistency with the International Tax Agreements Act 1953 (Cth), which gives force to certain non-discrimination clauses in international tax treaties.

The Commonwealth Act was subsequently amended to clarify that state taxation laws will prevail in the event of any inconsistency with international tax agreements. There is nonetheless a risk that the courts will determine that historical impositions of FPAD and AOS are invalid due to their inconsistency with Commonwealth law as it existed at the time when the purported tax liability arose.

The Bill mitigates this risk. Proposed changes provide that, if an FPAD or AOS liability is found to be invalid due to its inconsistency with the International Tax Agreements Act 1953 (Cth), then a new tax will be retrospectively imposed upon the same person and events, at the same time and in the same amount, as if FPAD or AOS had been validly charged in the first instance.

The practical effect of this is that:

• The amendments will have no effect if the existing FPAD and AOS liabilities are found to be valid;
• If in the case of an individual taxpayer, either FPAD or AOS is found to be invalid, the taxpayer will still be liable to pay the same amount under the new provisions; and
• If the taxpayer has already paid FPAD and / or AOS, then their previous payment of the invalid tax will be taken to have satisfied their liability under the newly imposed replacement tax.

These amendments intend to ensure that FPAD and AOS are imposed as intended by the Victorian parliament, irrespective of the outcome of the class action lawsuit.

Land tax exemption for charitable housing providers

Proposed changes to the Land Tax Act 2005 (Vic) create a new land tax exemption for housing owned or managed by charitable institutions. This is intended to assist charitable institutions which do not meet the eligibility criteria for the social housing or emergency housing exemptions which were introduced by the State Taxation Amendment Act 2024 (Vic) earlier this year.

To qualify for the exemption the land must be either:

1. used exclusively for accommodation, that is:
   1. owned, controlled or managed by a charitable institution; and
   2. provided solely for the charitable purpose of the relief of poverty; and
   3. occupied or available for occupation by a person in need of relief from poverty; or
2. vacant land, owned by a charitable institution and declared by its owner to be held for future use and occupation in accordance with paragraph (a).

This exemption will be available from the 2025 land tax year onwards.

Other amendments

Other proposed amendments to Victorian Taxation Acts include:

• changes to the Payroll Tax Act 2007 (Vic) which provide a partial payroll tax exemption for bulk-billing GP medical businesses, in proportion to their bulk-billing or fully-government-funded practice;
• an extension of the pensioner and concession card duty reduction in the Duties Act 2000 (Vic) to guardians of or trustees for persons with a legal disability, who hold a concession card;
• minor changes relating to the tax treatment of holiday homes and Alpine resorts; and
• amendments to the Land Tax Act 2005 (Vic) extending the benefit of the ‘excluded trusts’ exemption from trust surcharge land tax to non-racing clubs, and trusts where the beneficiaries are non-profit sporting, outdoor recreational, outdoor cultural or similar outdoor organisations.