The Victorian Government has introduced a significant reform to property taxation with the enactment of the Commercial and Industrial Property Tax Reform Act 2024 (Vic) (‘CIPT Act’). This legislation, which came into effect on 1 July 2024, replaces the longstanding transfer (stamp) duty for commercial and industrial properties with a new annual tax regime, the Commercial and Industrial Property Tax (CIPT).

This article provides a detailed analysis of the CIPT scheme, highlighting its key features and implications for businesses, property owners, and investors across Victoria.

Overview of CIPT

The CIPT imposes an annual tax on eligible properties, calculated at 1% of the unimproved value of the land. Unlike transfer duty, which is a one-off payment upon acquisition, CIPT represents an ongoing tax liability, aligning with modern property taxation trends.

CIPT applies to properties classified as having a “Qualifying Use” and becomes payable following a 10-year transition period triggered by an “Entry Transaction.” Specific exemptions may also apply, as outlined below.

Qualifying Use: What Properties Are Affected?

Under the CIPT Act, a property is deemed to have a Qualifying Use if it:

1. Has a commercial or industrial property classification under the Australian Valuation Property Classification Code (codes 200-499 or 600-699); or
2. Is used for student accommodation.

For mixed-use properties, CIPT applies if the primary use aligns with the above definitions. Owners can confirm property classification via council rates notices or land tax clearance certificates.

What Constitutes an Entry Transaction?

An Entry Transaction triggers the CIPT scheme when one of the following occurs after 30 June 2024:

1. Transfer of Ownership: Transactions involving more than 50% of the land’s ownership, where transfer duty is payable, will initiate the scheme.
2. Change in Ownership of the Landholding Entity: Transfers of more than 50% ownership in an entity holding qualifying land, where landholder duty is applicable.
3. Consolidation: Registration of a consolidation plan, where at least 50% of the consolidated land is already subject to CIPT.
4. Subdivision: Subdivision of a parent title already within the CIPT regime, with child lots inheriting the same CIPT entry date as the parent title.

Transactions exempt from duty under the Duties Act 2000—such as those involving charitable entities—do not constitute Entry Transactions and will not bring the property into the CIPT scheme.

The 10-Year Transition Period

Upon triggering an Entry Transaction, a 10-year transition period commences. During this period:

• No CIPT is payable on the property.
• Transfer duty is payable one last time at the point of settlement.
• The property can be transacted multiple times without additional transfer duty or CIPT liability, provided it continues to meet Qualifying Use requirements.

At the conclusion of the transition period, CIPT becomes payable annually.

Selling or Leasing CIPT-Affected Properties

Vendors are prohibited from passing CIPT liabilities onto purchasers through contract adjustments, except in high-value transactions (exceeding $10 million). Similarly, residential and retail tenants cannot be made liable for CIPT costs, in line with protections under the Residential Tenancies Act 1997 and the Retail Leases Act 2003. However, commercial tenants may be required to contribute to CIPT.

Exemptions from CIPT

Exemptions from CIPT apply to properties that qualify for land tax exemptions under the Land Tax Act 2005. For example, properties used exclusively for charitable purposes will not incur CIPT, provided they meet exemption criteria as of 31 December of the preceding year.

Transition Loan Scheme

To ease the financial impact of transfer duty during the transition period, the Victorian Government has introduced a transition loan scheme. This optional scheme allows purchasers to finance transfer duty over 10 years at a fixed interest rate, with repayments secured by a statutory charge over the property. Immediate repayment of the loan is required if the property’s use changes or it is sold.

Change in Use

If a property ceases to meet the Qualifying Use criteria during the transition period—such as through redevelopment for residential purposes—CIPT liability will not arise. However, subsequent transactions will revert to the standard transfer duty regime. Properties financed under the transition loan scheme must immediately repay outstanding loan amounts upon a change in use or sale.

Conclusion

The introduction of the CIPT marks a paradigm shift in property taxation in Victoria, with far-reaching consequences for stakeholders in the commercial and industrial property sectors. While offering potential long-term benefits, such as reduced transactional friction, the scheme requires careful management during the transitional phase to ensure compliance and strategic planning.

Property owners, investors, and businesses are encouraged to seek professional legal and financial advice to navigate this complex new regime effectively. As the CIPT framework unfolds, its impact is set to redefine Victoria’s property market and taxation system for years to come.