Changes to stamp duty, payroll tax, land tax and insurance duty.
Strategem Financial Services is pleased to bring you the latest updates on the significant changes announced by the Victorian Government as part of the 2023-24 State Budget. These changes include reforms to stamp duty, payroll tax, land tax, and insurance duty, with the aim of creating a more streamlined and equitable system. Let's delve into the key highlights.
Stamp Duty Reforms: Embracing a New System for Commercial and Industrial Properties
One of the most notable changes is the proposed abolition of stamp duty on commercial and industrial properties. Starting from July 1, 2024, these properties will transition to a new annual property tax system upon sale. Although detailed legislation is yet to be released, here's what we know so far:
Choice of Payment: The first purchaser of a commercial or industrial property after July 1, 2024, will have two options:
a. Pay the property's final stamp duty liability upfront as a lump sum (currently at a top rate of 6.5 percent).
b. Opt for an annual payment plan by paying fixed installments over a 10-year period, equivalent to the stamp duty and interest, with the assistance of a government-facilitated transition loan.
Transition to Annual Property Tax: Ten years after the property is acquired, the owner will begin paying an annual property tax, amounting to 1 percent of the unimproved value of the land. Once a property enters this new system, stamp duty will no longer be applicable for any future transactions.
It's important to note that these reforms will not affect current owners of commercial and industrial properties. The new system will only be applicable when the property is sold after July 1, 2024. The Victorian Government plans to engage in consultations with businesses and industry stakeholders in the coming months, with the legislation expected to be released by year-end.
Payroll Tax Changes: Easing the Burden for Businesses
The Government has also introduced several changes to the payroll tax system, aiming to alleviate the burden on businesses. Here are the key highlights:
Increased Tax-Free Threshold: From July 1, 2024, the tax-free threshold for payroll tax will be raised from $700,000 to $900,000. Furthermore, it will be further increased to $1 million from July 1, 2025.
Phase Out of Tax-Free Threshold: Starting from July 1, 2024, a phase-out mechanism for the tax-free threshold will be implemented for certain businesses. The tax-free amount will gradually reduce for every dollar a business pays in wages over $3 million. Businesses with wages exceeding $5 million will no longer benefit from the tax-free threshold.
Removal of Exemption for High-Fee Non-Government Schools: Effective from July 1, 2024, the payroll tax exemption for high-fee non-government schools will be removed. Approximately 110 schools, which account for the top 15 percent based on fee levels, will lose their exemption. The Minister for Education, in consultation with the Treasurer, will determine which non-government schools will continue to be exempt from payroll tax.
Additionally, as part of the Covid Debt Repayment Plan, there will be additional payroll tax changes commencing from July 1, 2023, and lasting for 10 years until June 30, 2033. Large businesses with national payrolls exceeding $10 million per year will be subject to an additional payroll tax levy. The rate will be 0.5 percent for businesses with national payrolls above $10 million, and 1 percent for those with national payrolls above $100 million. These additional rates will be applied to the Victorian share of wages above the respective thresholds. It's important to note that payroll tax exemptions for hospitals, charities, local councils, parental and volunteer leave will continue to apply.
Land Tax Reforms: Ensuring Equitable and Temporary Adjustments
Effective January 1, 2024, a series of changes will be introduced to the land tax system. These changes aim to strike a balance between ensuring fairness and implementing temporary adjustments. Here's what you need to know:
Covid Debt Repayment Plan: For a temporary period of 10 years, the following adjustments will be made:
General tax-free threshold for land tax will decrease from $300,000 to $50,000. The minimum threshold for trust taxpayers will remain unchanged.
General taxpayers will be subject to a temporary fixed charge of $500 for landholdings between $50,000 and $100,000, and $975 for landholdings between $100,000 and $300,000.
For general taxpayers and trust taxpayers with landholdings above $300,000 and $250,000, respectively, land tax rates will temporarily increase by $975 plus 0.1 percent of the value of their landholdings exceeding the respective thresholds.
Non-Temporary Measures: Starting from January 1, 2024, the following measures will come into effect:
Absentee owner surcharge rate will increase from 2 percent to 4 percent.
Land tax exemption for principal places of residence under construction or renovation will be expanded, allowing the Commissioner of State Revenue the discretion to extend the period by two years if a builder goes into liquidation.
A new land tax exemption will be introduced 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, even in cases where the trust has not been established.
It's worth noting that existing land tax exemptions, such as those for primary places of residence, primary production land, and land used by charities, will continue to apply.
Abolition of Business Insurance Duty: A Progressive Approach
From July 1, 2024, the Victorian Government will initiate the progressive abolition of business insurance duties, which currently apply to public and product liability, professional indemnity, employers' liability, fire and industrial special risks, as well as marine and aviation insurance. Over the course of nine years, from 2024 to 2033, the duty rate, currently at 10 percent, will be reduced by 1 percentage point each year until complete abolition is achieved.
Legislation concerning the aforementioned payroll tax, land tax, and insurance duty reforms is expected to be released in the near future. As your trusted financial partner, Strategem Financial Services will closely monitor the developments announced as part of the State Budget over the coming weeks and months.
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