The 2023 Victorian Budget has delivered mixed results for the property industry after expanding land taxes for property owners, while announcing reform plans to abolish stamp duty on commercial and industrial properties.  

Yesterday, the Victorian Government expanded land taxes after announcing that the tax-free threshold for general land tax rates would decrease from $300,000 to $50,000.  

A temporary “COVID-debt” fixed charge levy of $500 will apply for taxpayers with landholdings between $50,000 and $100,000, and a temporary fixed charge levy of $975 for taxpayers with landholdings between $100,000 and $300,000.  

For general taxpayers with property landholdings of more than $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 of more than $300,000.  

Existing land tax exemptions, including for primary places of residence, primary production land and land used by charities, will continue to apply. 

The Victorian Government also announced plans to reform stamp duty laws, replacing stamp duty for commercial and industrial properties with a flat tax from mid-next year.  

The reform won’t affect current owners of commercial and industrial properties, as properties will only be subject to the new arrangements once it has transacted. It also won’t affect owners of residential property. 

Land tax changes “will hurt mum and dad property investors”

Real Estate Institute of Victoria (REIV) CEO Quentin Kilian said the decision was a backward step that failed to address the shortage of affordable rental housing that’s impacting Victorian renters. 

“This is a tax on families – not the big end of town. The Government is seeking to recoup the budget debt off short-term solutions that will hurt mum and dad property investors and Victorian renters, while exacerbating the structural housing supply issues facing the state,” he said. 

PEXA’s Chief Economist Julie Toth said the newly announced levy had the potential to add directly to rental inflation as landlords tried to recoup increased costs, only adding to the state’s housing affordability crisis for residential property investors and renters.

“For residential housing, the COVID-debt levy will significantly increase the annual land tax paid by an estimated 860,000 Victorian landowners, including people who own more than one home – with 380,000 landowners now paying land tax for the first time,” Toth said.

“The decreased land-value threshold – from $300,000 to just $50,000 – will see this tax levied on far more properties across the state, for at least the next 10 years, and will need to be factored into the cost of investing in residential property in Victoria.”

REIV cited Australian Tax Office data showing more than 70% of Victorian property investors own only one rental property, with 43% of that group earning under $100,000 per annum.  

Property Investment Professionals of Australia (PIPA) and the Property Investors Council of Australia (PICA) also criticised the land tax changes.  

Commercial, industrial stamp duty reform

Under the stamp duty reform, commercial and industrial properties will shift to a new system as they are sold from mid-2024. 

The initial buyer of a commercial or industrial property after 1 July 2024 will have the option to make a one-time upfront payment to cover the property’s final stamp duty amount.  

Alternatively, they can choose to transition immediately to an annual payment structure by opting for fixed instalments over a 10-year period. 

The annual property tax that will ultimately replace stamp duty for commercial and industrial property will be set at a flat 1% of the property’s unimproved land value. 

The reform is projected to generate an additional $50 billion for the state’s economy. 

Property Council of Australia Victorian Executive Director Cath Evans said the phased elimination of stamp duty fees for commercial and industrial property transactions was a fantastic initiative that, if implemented well, will greatly encourage economic activity and investment in Victoria. 

The Victorian Government said targeted consultation will begin in the coming months to assist with the introduction of the reform from 1 July 2024.