State tax landscape set to change

The past few weeks have been marked by significant announcements in the state tax arena, with reforms announced in several jurisdictions. Most notably:

• Victoria – the state will transition away from stamp duty for commercial and industrial properties, to be replaced with an annual property tax. Victoria will also introduce significant ‘temporary’ land tax and payroll tax surcharges;
  
  
• Western Australia – the awaited draft laws required to implement the 50% land tax exemption for new build-to-rent developments which was outlined in Western Australia’s 2022 State Budget announcement have been introduced;
  
  
• New South Wales – the public landholder concession will cease to be available from 1 July 2023; and
  
  
• Northern Territory – stamp duty on the conveyance of non-land property (other than chattels conveyed with an interest in land) is to be abolished.

We outline these and other key tax reforms in this insight.

Victoria 

Abolition of stamp duty on commercial and industrial properties

The Victorian Government has announced a transition towards the abolition of stamp duty on commercial and industrial properties, to be replaced with an annual property tax.

From 1 July 2024, the first purchaser of a commercial or industrial property may elect to:

• pay the property’s final stamp duty liability as an upfront lump sum (i.e. as is the current position); or
  
  
• transition to an annual payment by paying fixed instalments over 10 years of an amount equal to the stamp duty that would otherwise have been payable, plus interest that is to be calibrated by reference to a government-facilitated ‘transition loan’.

An annual property tax, imposed at a flat rate of 1% against the property’s unimproved value, will apply to subsequent dealings in the property.

At this stage, key details of the proposal are not yet available and may not be available for some time pending the Government’s consultation with industry. Questions yet to be answered include:

• whether the new regime will apply to contracts exchanged before 1 July 2024, where settlement occurs on or after that date;
  
  
• whether Victoria’s complex sub-sale duty provisions will cease to be relevant such that nominations and assignments of uncompleted contracts can be effected without the risk of double duty;
  
  
• whether (and if so, how) the new regime will impact the landholder duty rules relevant to an acquisition of shares or units in a landholding entity, noting that the landholder duty regime is broadly intended to ensure that a similar stamp duty outcome arises regardless of whether a dealing in land is direct or indirect; and
  
  
• how landholder duty will be calculated where a landholder is entitled to a mix of commercial and residential property.

This proposal to remove stamp duty on transfer of commercial and industrial property will align Victoria more closely with the position in South Australia and, to an extent, the Australian Capital Territory. It will be interesting to see whether South Australia’s relatively simple ‘land use code’ system of categorising whether a property is qualifying land will be adopted in Victoria.

Business insurance duty

The Victorian Government has also announced that business insurance duty will be phased out over a 10-year period from 1 July 2024.

In particular, insurance duty, which is currently charged at a rate of 10% of the premium paid in relation to a contract of insurance, will be progressively reduced annually by one percentage point, over 10 years, in respect of policies relating to public and product liability, professional indemnity, employers’ liability, fire and industrial special risks, and marine and aviation insurance.

Temporary land tax surcharge

From 1 January 2024, and for a period of 10 years, a land tax surcharge will be levied, increasing land tax payable by:

• A$500 for taxable landholdings between A$50,000 and A$100,000;
  
  
• A$975 for taxable landholdings between A$100,000 and A$300,000; and
  
  
• A$975 plus 0.10% of the value of landholdings above A$300,000.

Trusts will become subject to the additional 0.10 percentage point in respect of taxable landholdings greater than A$250,000 (rather than A$300,000).

In effect, this means that persons currently paying land tax will pay an increased amount and those not currently paying land tax due to their landholdings falling below the prescribed value threshold may become subject to an amount of land tax.

Absentee owner surcharge changes

The absentee owner land tax surcharge rate will increase from 2% to 4% from the 2024 land tax year (i.e. in respect of land owned on 31 December 2023). The increased rate will align Victoria’s absentee owner surcharge with that applying in New South Wales.  In contrast, however, the Victorian surcharge applies to all land owned by absentee owners (and not just residential land as is the case in New South Wales).

Further, the Victorian State Revenue Office appears to be continuing to impose the surcharge to all foreign persons notwithstanding the apparent inconsistency with Commonwealth laws. Revenue NSW on the other hand now accepts that residents of the following countries are not subject to the NSW equivalent surcharge: New Zealand, Finland, Germany, India, Japan, Norway, Switzerland and South Africa.

Payroll tax measures

From 1 July 2023, and for a period of 10 years, a payroll tax surcharge will be levied on businesses with national payrolls over A$10 million a year, increasing payroll tax payable by:

• 0.5 percentage point on Victorian share of wages above A$10 million; and
  
  
• 1 percentage point on Victorian share of wages above $A100 million.

Other payroll tax measures include an increase to the payroll tax-free threshold, which is currently A$700,000:

• to A$900,000 from 1 July 2024; and
  
  
• to A$1,000,000 from 1 July 2025.

A ‘phase out’ approach to the tax-free threshold will involve the tax-free amount reducing for each dollar a business pays in wages over A$3 million. Employers with wages over A$5 million will not benefit from the tax-free threshold.

The existing payroll tax exemption for "high-fee" non-government schools will also be removed.

Western Australia

Build-to-rent land tax concession

Western Australia has introduced draft legislation for the implementation of its previously announced 50% land tax exemption for eligible build-to-rent developments from the 2023-24 assessment year.

The eligibility criteria appear to be broadly similar to those in Victoria and New South Wales, but with a lesser number of minimum dwellings (40 instead of the requisite 50 in Victoria and New South Wales).

Specifically, the eligibility criteria in Western Australia will be as follows:

• the land must be owned by the same owner or group of owners and managed by one management entity;
  
  
• the development must have been constructed or substantially renovated for the purpose of providing at least 40 self-contained dwellings for lease under a residential tenancy agreement;
  
  
• the dwellings in the development must become able to be lawfully occupied between 12 May 2022 and 30 June 2032;
  
  
• the dwellings must be made available to rent for a term of at least three years (however tenants may request a shorter lease term); and
  
  
• the dwellings cannot be restricted to certain classes of person unless it is necessary to ensure public health or safety, if the dwellings are social housing, or in prescribed circumstances.

Like in Victoria and New South Wales, a clawback will apply if the development ceases to qualify for the exemption within 15 years of first qualification.

New South Wales

Removal of the public landholder concession

The acquisition of a significant interest of at least 90% in a public landholder is presently subject to duty at an effective concessional rate of 0.55% (as compared to general rates of 5.5%). A 'public landholder’ includes a listed company, listed trust and widely held trust, that holds land in New South Wales with a market value of at least A$2 million.

This concessional rate of duty will be removed for relevant acquisitions occurring on or after 1 July 2023.  As the acquisition is generally made at completion in New South Wales, this amendment has potential adverse implications for agreed transactions that are yet to complete.

The Revenue Legislation Amendment Bill 2023 to enact these reforms is currently awaiting assent for commencement on 1 July 2023.

This amendment will align New South Wales with the position in Western Australia and the Northern Territory, where general rates of duty also apply to relevant acquisitions of public landholders.

Removal of the property tax regime for eligible first home buyers

Separately, the New South Wales Government has introduced the First Home Buyer Legislation Amendment 2023 to remove the annual property tax regime introduced last year (by the former Perrottet Government) for eligible first home buyers in New South Wales.

Under the proposed new laws:

• taxpayers who have opted into the property tax regime will remain in that regime (at least until the subject property is subsequently dealt it); and
  
  
• eligible taxpayers with transfers of land occurring before 1 July 2023 and transfers in conformity with an agreement made before 1 July 2023 may still elect to pay property tax rather than stamp duty.

Subject to the above transition rules, the stamp duty regime will again apply to all contracts of sale and transfers of land in New South Wales (unless otherwise exempt).

Northern Territory

Abolition of stamp duty on non-land property

The Northern Territory Government has introduced the Stamp Duty Amendment Bill 2023 that will see the abolition of stamp duty on the conveyance of non‑land property, other than chattels conveyed with an interest in land.

Chattels conveyed with an interest in land that is a lease for nil or nominal consideration will be eligible for a duty exemption where the transaction does not involve the conveyance of any other dutiable property.

The amendments will retroactively apply with effect from 9 May 2023 (when the announcement was made).

Under the transitional rules, the following will continue to be subject to stamp duty:

• a conveyance of non-land property first executed before 9 May 2023;
  
  
• a conveyance of non-land property that replaces an earlier conveyance first executed before 9 May 2023 of the same or substantially similar property; and
  
  
• a conveyance of non-land property further to an agreement or put or call option entered into before 9 May 2023.

This movement in the Northern Territory means that Queensland and Western Australia remain the only two jurisdictions that continue to impose duty on the transfer of non-real property assets.

Final comments

These changes in law across various aspects of state taxes over the month of May 2023 serve to highlight the difficult (and perhaps impossible) dream of harmonisation across the states and territories. Arguably, now more than ever taxpayers who operate across state borders must pay close attention to the laws that apply and no assumption should be made that what is true in one jurisdiction is true of another.

Whether next month will bring another suite of new measures when Queensland, South Australia and the Australian Capital Territory hand down their respective Budgets remains to be seen.