New stamp duty laws for commercial property

Property purchasing laws are updated regularly and stamp duty is set to change for commercial property in Victoria in 2024. Find out what’s different. 

One of the challenges of purchasing property is knowing all the different costs involved, and they change regularly which can make things even more confusing. 

To share a current example, the Victorian Government recently announced an update to stamp duty for commercial property purchases. Take a look at what is changing and when. 

Updates to commercial property stamp duty in Victoria

The Victorian Government announced it will switch up stamp duty for commercial and industrial properties as part of its state budget in May. 
The change is set to commence in July next year. When it initially comes into effect, purchasers will have the option to either pay stamp duty as an upfront lump sum or pay fixed installments as property tax over ten years. These fixed installments will be equal to the cost of stamp duty. 

From there, as shared on the Victorian State Government website, an annual property tax will ultimately replace stamp duty for commercial and industrial property. It will be set at a flat one percent of the property’s unimproved land value.

By giving businesses the option to either pay stamp duty upfront or spread it over a ten year period, and then transitioning to a land tax arrangement, the Government says it will free up much-needed capital that can be invested in expanding operations and employing more workers. 

Victorian Treasurer Tim Pallas says this change is in response to calls from business and industry. His announcement states: “These landmark changes will enable businesses to be more dynamic and agile, and to grow and employ more workers. We’re removing barriers to larger investments, accelerating business growth and helping our economy grow even stronger.”

Here are a four things to note: 

  • If a business currently owns a commercial property, this doesn’t mean it will need to start paying land tax. The change only applies to premises purchased after July 1st, 2024

  • The Victorian Chamber of Commerce has backed the change, saying this is the type of progressive tax reform that is required to free up stamp duty charges which will accelerate building upgrades, stimulate investment in commercial property and free up more capital. 

  • The change won’t apply to residential property. 

What does this mean for commercial rent rolls?

Supporters of this initiative point out how it will reduce the purchasing costs for commercial property because a lump sum will no longer be required to cover stamp duty. This will reduce barrier to entry for a lot of businesses and investors.

Real Estate Institute of Victoria (REIV) Chief Executive Quentin Kilian was quoted saying the announcement shows the government is listening to the sector’s needs. However, he clarified the need to review the announcement to figure out how it will affect capital flows and property ownership costs in the commercial sector.

While not paying stamp duty upfront saves money on purchasing costs, the ongoing expense will have to be factored into leases, which may be challenging given current vacancy rates. It could give owners who bought their properties before the tax was introduced an advantage because they will either be able to price competitively or charge market rates without having to pay land tax. 

If you’re looking to purchase a commercial rent roll, factoring in land tax requirements will have to be considered as part of your calculations. It may be better to make a purchase before the changes come into effect, so you can oversee assets which are exempt from paying this fee. 

Need help to assess the feasibility of a commercial rent roll purchase? Contact BDH Solutions today.