News is spreading that as a part of the Budget announced last week, the Victorian Government will be replacing stamp duty on commercial and industrial property transactions with an annual property tax. The change will be implemented from 1 July 2024. The intent is to reduce barriers to property transaction, allowing assets to trade more freely.
The proposed tax will be 1% of the unimproved (i.e. undeveloped) land value, whereas the current system is calculated off the improved (i.e. developed) value, with the top rate being 6.5%. As such, the net outcome for landowners will vary from site to site, however the move appears to have the potential to discourage land banking and to free up cash for other purposes early after a property acquisition. The Victorian Government estimates that this change will result in a “cumulative increase in the size of the Victorian economy as a result of this reform is up to $50 billion in Net Present Value terms”.
There will be a transition period where the first purchasers of a property will be able to choose between paying stamp duty upfront at the time of purchase, or paying in equal instalments over ten years, moving to the 1% p.a. tax after the ten year transition period. The instalment approach would be structured similarly to a loan, with government interest being charged.
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