Victorian Treasurer Tim Pallas MP handed down his 2023-24 Budget on 23 May 2023 focusing on the repayment of the Victorian government’s massive COVID-19 debt, as well as making some reforms to Victorian property taxes.
A number of the changes announced relate to the new COVID Debt Levy which will bring unwelcome additional payroll and land tax liabilities to businesses and landowners from 1 July 2024 to 30 June 2033. There are some welcome changes though, including the replacement of the transfer duty currently applicable on the acquisition of a commercial or industrial property with an annual property tax.
Set out below is a summary of the key State Tax announcements.
As part of the COVID Debt Levy - Payroll, businesses with national payrolls above $10 million will pay an additional 0.5 percent in payroll tax. Businesses with national payrolls above $100 million will also pay an additional 0.5 percent payroll tax (i.e., an additional 1 percent payroll tax in total).
The COVID Debt Levy - Payroll will apply from 1 July 2023 to 30 June 2033.
The payroll tax-free threshold will increase from $700,000 to $900,000 from 1 July 2024 and from $900,000 to $1 million from 1 July 2025.
Further, the deduction associated with the tax-free threshold will begin “phasing out” for every dollar of wages above $3 million. Consequently, businesses with wages above $5 million will not benefit from the tax-free threshold.
The payroll tax exemption that currently applies to high-fee non-government schools will be removed from 1 July 2024. The aim of this exemption being removed is to ensure the benefit of this exemption is only provided to schools that are considered to be in need of support.
As part of the new COVID Debt Levy - Landholdings, any land tax payable from 1 January 2024 to 30 June 2033 will include the following additional temporary fixed charges:
As a result, landowners that own land which is subject to land tax can expect to pay additional land tax from the 2024 to 2033 land tax years.
Also, as part of the COVID Debt Levy - Landholdings, the tax-free threshold applicable under the general land tax rates will temporarily decrease from $300,000 to $50,000 from 1 January 2024 to 30 June 2033. The tax-free threshold applicable under the trust surcharge rates will remain at $25,000.
This means that from the 2024 to 2033 land tax years, landowners (excluding trust landowners) will need to pay land tax on any landholdings held with a total taxable value that exceeds $50,000.
Given the current property market in Victoria, the decrease in the tax-free threshold is unlikely to have much impact on its own, particularly on landowners that own houses (which will have a taxable value that exceeds $300,000). Landowners that do not currently pay land tax will likely need to start paying land tax from the 2024 land tax year onwards (unless the land is exempt from land tax).
The absentee owner land tax surcharge rate will increase from 2 percent to 4 percent from 1 January 2024, aligning Victoria with New South Wales.
As a result, any absentee (i.e., ‘foreign’) individual, corporation, or trust subject to the absentee owner land tax surcharge can expect to pay additional land tax from the 2024 land tax year.
Commencing from the 2024 land tax year, the Commissioner will have the discretion to extend the land tax exemption for a principal place of residence under construction or renovation for an additional two years if the builder goes into liquidation.
This means that owners will have up to six years (instead of the maximum four years) after the construction or renovation has commenced to start using and occupying the new residence as their principal place of residence to qualify for the exemption.
The lump sum transfer duty payable for commercial and industrial properties will transition to an annual property tax from 1 July 2024.
However, the first purchaser of a commercial or industrial property after 1 July 2024 will be able to choose to:
Importantly, the new annual property tax will not apply to the owner of any commercial or industrial property purchased prior to 1 July 2024. It will only apply once a particular property enters the new annual property tax system. Consequently, transfer duty will not be payable on any future transaction pertaining to the property and the annual property tax will apply.
The annual property tax that will be applicable will be a flat 1 percent of the property’s unimproved land value.
Other transfer and land tax changes announced include:
The rate of duty for business insurance duties will be reduced from 10 percent by 1 percent every year from 1 July 2024, until ultimately abolished in 2033.
Insurance duty currently applies to public and product liability, professional indemnity, employers’ liability, fire and industrial special risks, as well as marine and aviation insurance.
The wagering and betting tax will increase from 10 percent to 15 percent of net wagering revenue from 1 July 2024 and will align Victoria with New South Wales, as well as some other States and Territories.
As a result, the amount of net wagering revenue paid to the Victorian Racing Industry will be lifted from 3.5 percent to 7.5 percent.
For more information on any of the tax measures announced in the Victorian State Budget please get in touch with the Crowe Tax Advisory team.
The views and opinions expressed in this article are those of the author/s and do not necessarily reflect the thought or position of Crowe Australasia