Kim O’KEEFFE (Shepparton) (12:26): I rise to stand and make a contribution on the Commercial and Industrial Property Tax Reform Bill 2024. The bill before the house follows the announcement of the new tax in last year’s Victorian state budget, handed down in May, where the government announced that land transfer stamp duty on commercial and industrial properties will be abolished and instead replaced with a new tax.
While we fully support the removal of stamp duty from commercial and industrial transactions on this side of the house, we have concerns regarding the government’s proposed reform scheme. The bill seeks to reform the taxation of commercial and industrial property as well as amend the Duties Act 2000 and the Taxation Administration Act 1997, the Treasury Corporation of Victoria Act 1992 and other acts. From 1 July this year commercial and industrial properties will transition to this new system that the bill establishes and creates as they are sold, with an annual property tax to be payable from 10 years after the transaction. However, for commercial or industrial property purchased before 1 July this year, the tax reform will not apply. In addition, through the bill, properties that are used for residential purposes, primary production, community services, sport or heritage and cultural purposes, as coded primarily by the valuer-general, will also not apply.
The new commercial and industrial property tax will be 1 per cent of the property site value, but 50 per cent of the property will be the interest in the land that is acquired with a positive duty liability and has a qualifying commercial or industrial use at the end of settlement. The tax replaces stamp duty and is separate from land tax, which will continue to apply. The bill and reform do not make any changes to land tax.
While the legislation prohibits a landlord from passing on the commercial and industrial property tax to the tenants, commercial tenants are rightly concerned that the annual 1 per cent CIPT will be passed on to them through increased rents, as has been the case with the government’s recent increases to land tax from 1 January this year. We expect there will be a similar outcry from businesses to what we are experiencing from Labor’s increase to the land tax base by lowering the tax threshold from $300,000 to $50,000 while slapping an additional flat tax of up to $975 on Victorian households. We are seeing the significant financial detrimental impact this is having, with many selling their properties due to increased land tax costs making the property no longer a viable financial investment, with rental increases passed on to the tenant. The Treasurer himself stated that his own land tax hike will cost the average Victorian household an additional $1300 every year.
These changes will punish and divide house owners and renters across the state already in a cost-of-living crisis, which the government does not have a plan to tackle. This tax increase will lead to further pressures on households, increase the costs of running a business and increase rents, impacting some of the state’s most vulnerable. This comes at a time when Victorians can least afford it. This is yet another example of the Allan Labor government punishing Victorians for Labor’s own financial mismanagement. The new commercial and industrial property tax will be based on land ownership as at 31 December following the 10th anniversary of the first transaction of the property after 1 July 2024. For the long-term owners of commercial and industrial property, this tax will impose a much higher tax impost over time than otherwise would have been paid through stamp duty. Commercial properties in Victoria are typically held for at least between 14 and 15 years, with this trend likely to continue, and Victorian investors and businesses will end up paying more.
Under the proposed reforms purchasers of commercial and industrial property paying the final stamp duty liability may elect to have a 10-year transition government loan. This loan will consist of two components – the base loan rate and a risk margin rate – which can be amended annually by the Treasurer. Those who elect to take on the 10-year government loan may be subjected to increased interest rates over the 10-year loan period, with no justification needed. This compromises certainty and confidence for investors and Victorian businesses. In the proposed amendments put forward we call for increased transparency and call on the Treasurer to annually publish the reasons for the risk margin component of a loan.
The bill also incorporates ‘qualifying use’. A property is considered to have a qualifying commercial or industrial use if it meets one of the conditions at the settlement date of a property transaction, and in addition, if the property is allocated an Australian valuation property classification code that represents commercial, industrial, extractive industries or infrastructure and utilities land.
It is also important to note the recent inquiry that the Legislative Council Economy and Infrastructure Committee conducted into land transfer duty fees. As in the minority report handed down by the Liberals and Nationals, since coming to power Labor has increased taxes on homes and land supply; in addition, Labor has failed to provide an adequate supply of new land, especially in regional Victoria. Property prices have increased significantly, which is leaving many Victorians feeling the pinch. The government’s stamp duty tax in 2014 saw an increase from $4.938 billion to $10.194 billion in 2021–22, which has seen the government fail to index stamp duty across the state – not just in metropolitan Melbourne but also in regional Victoria.
Since coming to power in 2014 Labor has increased taxes on homes and land supply, which is having a significant financial impact. The main report of the committee shows there has been increased tax by Labor in terms of stamp duty, land tax and increased development taxes. But it should also not be forgotten by Victorians that Labor has introduced 53 new or increased taxes since being in power. In their testimony provided to the committee the Urban Development Institute of Australia as well as the property council pointed to the high contribution of government taxes to the cost of homes and land. The failure of the Labor government to provide an adequate supply of new land, especially in regional Victoria, has resulted in significant increases in property prices for Victorians.
The proposed legislation will apply to property transactions with a contract and settlement date on or after 1 July this year. For these properties stamp duty will be paid one final time on the property when it is transacted, and the new tax will be payable 10 years after the final stamp duty payment, regardless of whether the property has transacted again. If the property is sold and transacted again, stamp duty will not apply if the property continues to be used as a commercial or industry property.
As previously mentioned, there is an option the government is providing to purchasers of commercial or industrial properties – a government-facilitated transition loan – as an alternative to self-financing the up-front stamp duty amount. However, the transitional loan will only be available to applicants that are eligible, which include Australian citizens, permanent residents or Australian businesses, the first purchaser of a commercial or industrial property when settlement occurs for contracts entered into on or after 1 July this year, or when purchasing property up to a maximum purchase price of $30 million and approved for finance by an authorised deposit-taking institution or other approved lender for the subject of property.
The bill briefing provided by the government and the department said the revenue flow from the new tax itself will flow on each year. As such, tax will start as a trickle due to the uncertainty around forecasting and the 1 per cent tax rate to come as a neutral revenue flow in 2050. Industries have expressed concerns for the short period of implementation time allocated by the government. If this legislation is passed by Parliament in the first few weeks of May, with reforms to be enforced from 1 July 2024, it will give less than two months to get across the detail of a highly complex set of reforms to the commercial property market. This short implementation time, paired with the complexity of the proposed reforms, creates a prime environment for mistakes.
My electorate is home to a diverse range of successful and proud commercial and industrial businesses, and we seek to attract future investment and opportunities for the region. A stamp duty concession is currently available for commercial and industrial properties purchased in regional Victoria. The government’s proposed CIPT rate proposes to remove regional stamp duty concessions by stealth, imposing an ongoing 1 per cent tax on unimproved land for all properties. Regional Victorians are rightly concerned that the proposal will erode existing incentives to invest in regional Victoria. We should be encouraging businesses in regional Victoria to expand and set up their business platform in the best location possible in order to invest in buildings and infrastructure to cater for and service the community and the region more broadly.
The legislation proposes to set up CIPT to a flat 1 per cent of unimproved land value. The government are not proposing to index this rate to protect it from the market increases over time. There are also no assurances to protect business owners from future tax increases. I thank the lead speaker for the opposition, the member for Sandringham and Shadow Treasurer, for his contribution and effort, and I support his proposed amendments.