On 23 May 2023, the Victorian Government delivered the State Budget.
Detailed below is a summary of the significant tax measures and a consideration of the announced measures in greater detail.
Budget measures in detail
COVID Debt Repayment Plan
The government will introduce a COVID Debt Repayment Plan to repay the government borrowings of $31.5 billion during the COVID pandemic.
COVID Debt Levy
The COVID Debt Repayment Plan contains a temporary levy that will apply for 10 years, until 30 June 2033. The levy has two components — a payroll component and a landholdings component.
Payroll component
From 1 July 2023, additional payroll tax will be levied as follows:
- businesses with national payrolls above $10 million — a rate of 0.5% will apply; and
- businesses with national payrolls above $100 million — an additional 0.5% will apply (that is, a total payroll tax levy of 1%, effectively taking the payroll tax rate to 5.85%).
The additional rates will be paid on the Victorian share of wages above the relevant threshold.
Payroll tax exemptions, such as those for hospitals, charities, local councils and wages paid for parental and volunteer leave, will continue to apply.
Landholdings component
From 1 January 2024, the land tax thresholds and rates will be amended as follows:
The tax-free threshold for general land tax rates will decrease from $300,000 to $50,000.
A temporary fixed charge will be levied on taxpayers as follows:
- $500 will be levied on taxpayers with landholdings between $50,000 and $100,000; and
- $975 will be levied on taxpayers with landholdings between $100,000 and $300,000.
For taxpayers with property landholdings above $300,000 (and trust taxpayers with property holdings above $250,000), land tax rates will temporarily increase by $975 plus 0.1% of the value of their landholdings above $300,000.
Existing land tax exemptions, including for primary places of residence, primary production land and land used by charities, will continue to apply.
Stamp duty
Transitioning from stamp duty to annual property tax
From 1 July 2024, the Victorian government will transition from stamp duty to an annual property tax for commercial and industrial properties.
The transition away from stamp duty for commercial and industrial properties will occur after the next sale, with the annual property tax applying after 10 years.
The annual property tax for commercial and industrial property will be 1% of the property’s unimproved land value.
Current commercial or industrial property owners will be exempt — the transition will only apply to those choosing to buy commercial or industrial property in the future.
| Example
On 1 July 2024, Simon purchases a commercial property for $15 million, with duty payable of $955,000. Simon requests to pay duty in instalments over 5 years. Over the period of 5 years, Simon will pay instalments of $191,000 per year with the *interest charges calculated as follows: Year 1: $30,865 If Simon holds the property for 15 years, under the new measures, he will pay an additional 1% annual tax on the unimproved value of the property. If the unimproved value of the property is $10 million, the additional tax payable over the 5 years will be $500,000. Accordingly, Simon will pay a total amount of $1,532,162 (duty, accrued interest and annual property tax). In contrast, the current duty system imposes duty of only $955,000. *Interest is applied based on the Victorian treasury 10-year bond rate of 4.04% p.a. |
The government is finalising details of the reform with announcements to be made by the end of 2023.
Fairer land transfer duty for pensioners and concession card holders
For contracts entered into from 1 July 2023, the same land transfer duty exemption and concession thresholds will apply for single and multiple pensioners.
The exemption and concession thresholds will also be aligned with first home buyers, at $600,000 and $750,000 respectively.
Land tax
Harmonise the absentee owner surcharge rate with New South Wales
From 1 January 2024, the absentee owner surcharge rate will increase from 2% to 4% and the minimum threshold for non-trust absentee owners will decrease from $300,000 to $50,000.
This means the surcharge will be payable if the total taxable value of Victorian land held by a non-trust absentee owner is equal to or exceeds $50,000. There will be no change to the minimum threshold for trust taxpayers.
This initiative will align Victorian and New South Wales rates and is intended to help ensure overseas property investors contribute towards the provision of government services and infrastructure in Victoria.
Allow a longer land tax exemption where construction or renovation of a principal place of residence is delayed due to builder insolvency
From 1 January 2024, the Commissioner of State Revenue will have discretion to extend the land tax exemption for principal places of residence under construction or renovation, for up to an additional two years.
This discretion will apply where additional time is required to complete construction due to builder insolvency. Consistent with the existing exemption, the owner must not be entitled to another principal place of residence exemption.
Introduce a land tax exemption for land with a conservation covenant
The government will introduce a new land tax exemption for land protected by a conservation covenant with Trust for Nature from 1 January 2024.
A conservation covenant is a voluntary, legal agreement made between a private landowner and Trust for Nature to permanently conserve land. This exemption is intended to encourage landowners to protect the conservation value of land.
Payroll tax
Increase the payroll tax-free threshold
The government will raise the payroll tax-free threshold and phase out the benefit of the tax-free threshold for larger business.
From 1 July 2024:
- The payroll tax-free threshold will increase from $700,000 to $900,000, and subsequently increase further to $1 million from 1 July 2025. More than 26,000 small businesses will benefit from the government increasing the tax-free threshold to $1 million.
- The government will introduce a ‘phase out’ to better target the benefits of the tax-free threshold to small business. This phase out will result in the tax-free amount reducing for each dollar a business pays in wages over $3 million. Businesses with wages over $5 million will not benefit from the tax-free threshold.
Removal of payroll tax exemption for high-fee non-government schools
From 1 July 2024, the government will remove the payroll tax exemption for high-fee non-government schools. This initiative is intended to align the payroll tax treatment of such schools with that of government schools, and ensure the benefit of the exemption flows to schools that need support.
The government estimates approximately 110 schools, or around the top 15% by fee level, will lose this exemption.
Other measures
Abolish business insurance duty
The government will abolish business insurance duties (which apply to public and product liability, professional indemnity, employers’ liability, fire and industrial special risks, and marine and aviation insurance). Abolition will be achieved by 2033, with the rate of duty, currently 10 per cent, being reduced by 1 percentage point each year from 1 July 2024.
Harmonise the wagering and betting tax rate with New South Wales
From 1 July 2024, wagering and betting tax will increase from 10% to 15% of net wagering revenue. The new tax rate will enable the government to lift the amount of net wagering revenue that is paid to the Victorian racing industry from 3.5% to 7.5%.
The balance of revenue from the tax will continue to be distributed to the Hospitals and Charities Fund and the ANZAC Day Proceeds Fund. This initiative will align Victoria with the rate that applies in New South Wales, and most other states and territories.
Expanding tax concessions for families providing a home for a relative with a disability
To support families providing a home for a relative with severe disability, land transfer duty and land tax relief will be provided in circumstances where the occupant is eligible to be a beneficiary of a Special Disability Trust.
Special Disability Trusts are a type of trust that allows immediate family members to plan for the current and future needs of a person with severe disability.
From 1 July 2023:
- the Special Disability Trust land transfer duty deduction threshold will be increased from $500,000 to $1.5 million for principal place of residence transfers; and
- eligibility for the Special Disability Trust land transfer concession will be expanded to include those transferring a home valued up to $1.5 million to an individual eligible to be a beneficiary of a Special Disability Trust, even where no trust has been established.
From 1 January 2024, a new land tax exemption will be introduced for land owned by an immediate family member and used as the home of an individual eligible to be a beneficiary of a Special Disability Trust, even where no trust has been established, provided there is no consideration (that is, no rental paid).
This measure is intended to assist people to provide long-term housing solutions for immediate family members with severe disabilities.
Waste levy relief for charitable recyclers
From 1 July 2023, eligible Victorian charities will receive an ongoing exemption from the waste levy to help manage waste management costs arising from illegal dumping and unsuitable donations.
The relief may take the form of an annual rebate and will allow the charitable recycling sector to continue their important role in Victoria’s circular economy. DEECA and the Environment Protection Authority will work with the sector to develop arrangements.
Summary
These changes are going to affect many people and organisations, and impose considerable further financial obligations on them.
If you would like to discuss the above Budget measures and how they will affect you, please contact a member of our Tax or Property teams.
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