Victorian Budget 2023-24: Businesses and landowners to pay for the COVID-19 debt
24 May 2023
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.
Increase in payroll tax rate
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.
Payroll tax-free threshold increase and deduction “phasing out”
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.
Removal of payroll tax exemption for certain schools
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.
Additional land tax surcharges
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:
A $500 flat surcharge for landowners with landholdings that have a total taxable value of between $50,000 and $100,000;
A $975 flat surcharge for landowners with landholdings that have a total taxable value of between $100,000 and $300,000;
A $975 flat surcharge plus an increased rate of land tax of 0.1 percent for landowners with landholdings that have a total taxable value over $300,000 ($250,000 for trusts).
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.
Land tax tax-free threshold decrease
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).
Absentee owner land tax surcharge increase
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.
Land tax exemption extension for construction/renovation impacted by builder liquidation
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.
New annual property tax for commercial and industrial properties
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:
pay the property’s final stamp duty liability as an upfront lump sum; or
transition to an annual payment immediately by electing to pay fixed instalments over ten years equal to the transfer duty and interest (with a government-facilitated transition loan). The annual property tax will be payable from 10 years after the transaction.
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
Other transfer and land tax changes announced include:
A new land tax exemption from 1 January 2024 for land owned by an immediate family member and used as the home of an individual eligible to be a beneficiary of a special disability trust, including where a special disability trust has not been established;
An increase in the deduction threshold for the land transfer duty special disability trust concession from $500,000 to $1.5 million from 1 July 2023 for principal place of residence transfers;
A new land transfer duty concession for the transfer of a home valued up to $1.5 million from 1 July 2023 by an immediate family member to an individual eligible to be a beneficiary of a special disability trust;
The alignment of the land transfer duty pensioner exemption and concession thresholds with the thresholds for first home buyers at $600,000 and $750,000 respectively, for contracts entered into from 1 July 2023;
A new land tax exemption from 1 January 2024 for land protected by a conservation convent with Trust for Nature.
Abolishment of business insurance duty
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.
Increase in wagering and betting tax rate
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 Findex/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 Findex (Aust) Pty Ltd.