Victorian Commercial and Industrial Property Tax Reform Act is now law: here’s what you should know

The Victorian Commercial and Industrial Property Tax Reform Act 2024 (Vic) (CIPT Act) passed both houses of Parliament and received royal assent on 21 May 2024.

The CIPT Act implements the Victorian Government’s 2023/24 Budget announcement to introduce a commercial and industrial property tax (CIPT) from 1 July 2024. We explained the key features of the reform in our earlier Insight, ‘Victorian Commercial and Industrial Property Tax detail announced’.

In this Insight, we consider some of the detail contained in the CIPT Act that was not previously announced, including:

• practical aspects of the assessment of CIPT;
• liability for CIPT when land is subject to certain long-term leases;
• that the Victorian Government can garnish tax from a lessee, mortgagee or occupier of land;
• notification obligations; and
• the impact of the CIPT Act on other legislation.

Practical aspects of the assessment of CIPT

How is CIPT assessed?

CIPT is charged at 1 per cent of the site value of taxable land (or 0.5 per cent for build-to-rent land) that:

• has entered the tax reform scheme;
• is no longer within its transition period of 10 years;
• has a qualifying use at midnight on 31 December immediately preceding the then current tax year; and
• is taxable land within the meaning of the Land Tax Act 2005 (Vic).

This means that when land enters the reform scheme, stamp duty will be paid one last time and thereafter CIPT will apply after 10 years. As long as the land remains reform land, any subsequent transactions on CIPT land will only be liable for CIPT and not subject to any further transfer duty.

Who administers CIPT and the transition loan program?

The Commissioner of State Revenue administers the CIPT and the Treasury Corporation of Victoria (TCOV) will administer the transition loan program.

Can anyone apply for a transition loan?

No. From 1 July 2024, the first purchaser of a qualifying use property may apply to TCOV for a transition loan to enable them to finance the upfront stamp duty liability if certain conditions are met, including that the property has a purchase price of up to $30 million.

What other taxes are also payable?

For the avoidance of doubt, the CIPT Act specifically states that CIPT is imposed on CIPT taxable land in addition to any other taxes and charges imposed on – or calculated by reference to the value of – the land, including land tax, windfall gains tax, local government rates and charges and the fire services property levy.

Can taxpayers pass on the CIPT?

CIPT cannot be passed on in a residential rental agreement, to a tenant under a lease subject to the Retail Leases Act 2003 (Vic) (RLA) or to the purchaser in a contract for the sale of land if the land is valued at less than a threshold amount (which is currently $10 million).

Are reassessments of CIPT restricted to a five-year period?

No. The usual reassessment provision in the Taxation Administration Act 1997 (Vic) has been overridden by the CIPT Act, which specifically states the Commissioner can make a reassessment of CIPT more than five years after the initial assessment.

Can taxpayers object to CIPT?

Yes. Taxpayers can object to CIPT assessments, including valuations used to calculate an owner’s CIPT liability.

Liability when land is subject to certain long-term leases

If a lessee has a leasehold estate and they became entitled to that estate before 30 December 1978, both the lessee and the owner of the freehold estate are to be assessed for CIPT.

The Commissioner may apportion the CIPT payable on the land between the freehold owner and the lessee if the Commissioner is of the opinion that the value of the freehold owner’s interest in the land is lessened by the covenants of the lease. In that case, the owner of the freehold estate and the lessee are each liable to pay the proportion of CIPT determined by the Commissioner.

Garnishing unpaid CIPT

Under the CIPT Act, if a tax default occurs in relation to CIPT, the Commissioner can serve a written notice on a lessee, mortgagee or occupier of the land on which the CIPT is payable, requiring that person to pay an amount of CIPT (including any interest and penalty tax) that is payable but remains unpaid.

Unless a lessee or occupier is a related corporation or relative of the taxpayer, the Commissioner can only require the lessee or occupier to pay:

• an amount that is equal to or less than the amount of rent the lessee or occupier is required to pay to the taxpayer; and
• on the day on which the lessee or occupier is required to pay rent to the taxpayer.

This effectively means that the lessee or occupier pays CIPT to the Commissioner on behalf of the taxpayer and in lieu of the rent it would have otherwise paid to the taxpayer. The lessee will then be deemed to have paid rent to the taxpayer under the lease or agreement or under any applicable tenancy law, in the amount that the lessee paid to the Commissioner.

Notification obligations

 A person who is served with a notice of assessment of CIPT is required to notify the Commissioner:

• of any error or omission in the notice (including identifying land that has a qualifying use at the time but is not specified in the notice or any land listed in the notice that is not subject to CIPT), within 60 days; or
• of any change of use in the land, within 30 days.

Impact on other legislation

As a result of the CIPT Act, consequential amendments have been made to a number of other Acts including:

• extending the offence provisions in the Sale of Land Act 1962 (Vic) (SOL Act) to a vendor who requires the purchaser to pay an amount for or towards CIPT for which the vendor is or may become liable in respect of the land, unless the price of the land exceeds the threshold (which is currently $10 million); and 
• ensuring a section 32 statement issued under the SOL Act includes information to explain whether or not:
  • the land for sale qualifies as tax reform land and if so, the AVPCC^[1] most recently allocated to the land; and
  • if the land for sale qualifies as tax reform scheme land, its entry date.

^[1] Australian Valuation Property Classification Code