Victorian Budget 2023-24: State taxation impact

On 23 May 2023 the Victorian Government released the 2023-24 State Budget, with significant changes and impact for the Victorian state taxation regime. This includes:

Abolition of transfer duty on transfers of Commercial and Industrial Properties: 

1. It is proposed to abolish transfer duty on transfers of commercial and industrial properties effective from 1 July 2024. The duty will be replaced with an annual property tax of 1% of the property’s unimproved value. This tax will come into effect 10 years after the property is first transferred after 1 July 2024.
2. Although this will be potentially beneficial in the long term, there are transitional provisions that still impose transfer duty on the first sale after 1 July 2024. In that case, the buyer has the option of paying the transfer duty in one lump sum or spreading the payment over 10 years (with interest added). After 10 years, the annual property tax will apply. Once the property is in the system, no duty will be payable on subsequent transfers.
3. It is unclear how the new provisions will apply to landholder duty acquisitions or vacant land.

Land Tax

4. ​The following changes will apply for the next 10 years commencing from 1 January 2024:
   1. Reduction of tax free threshold: From 1 January 2024, the tax-free threshold for general land tax rates will decrease from $300,000 to $50,000. This will increase the tax net significantly.
   2. Additional Fixed Charge: An additional fixed charge of $500 will apply to taxpayers with landholdings with a value between $50,000 and $100,000 and $975 for taxpayers with landholdings above $100,000.
   3. Increase in Land Tax Rate: The land tax rate will increase by 0.1% for general taxpayers with holdings over $300,000 and trusts with landholdings over $250,000.
   4. Absentee owner surcharge: the absentee ownership surcharge will increase from 2% to 4%.

Windfall Gains Tax

5. As anticipated, the windfall gains tax (WGT) has been confirmed for commencement from 1 July 2023, being a tax imposed on large windfall gains associated with rezoned land that creates significant uplifts in a land’s value. More information on the WGT can be found here.

Payroll Tax

6. The following changes are proposed:
   1. Payroll tax free threshold: the payroll tax free threshold will be lifted from $700,000 to $900,000 on 1 July 2024. It is proposed that from July 2025, the threshold will be lifted again to $1,000,000. The deduction associated with the tax-free threshold will begin phasing out for every dollar of wages above $3 million. This means businesses with wages above $5 million will not receive any benefit associated with the payroll tax-free threshold.
   2. COVID Debt Levy (Payroll Tax): to offset the impact of COVID Debt, from 1 July 2023 businesses with national payrolls over $10 million will temporarily pay payroll tax of 0.5% and businesses with national payrolls over $100 million will pay an additional 1% on the Victorian share of wages above the relevant threshold. The payroll surcharge will apply for 10 years. This is in addition to the mental health levy already imposed on such businesses.

Other Changes

7. Effective 1 July 2024:
   1. business insurance duty on premiums will be reduced by 1% per year from the current rate of 10% to zero over a 10 year period.
   2. the payroll tax exemption for “high-fee” non-government schools will be abolished.
   3. Wagering and betting tax will increase from 10% to 15%.

This article was written by John Caravousanos, Partner