Commercial and Industrial Property Tax

In 2024 the Victorian government passed legislation introducing a new Commercial and industrial property tax (CIPT). The aim of the CIPT is to progressively replace land transfer and landholder duty (i.e. stamp duty) on commercial and industrial property transactions.

The first time a 50% or more interest in qualifying commercial or industrial property is sold after 1 July 2024, land transfer duty will still be payable. At the time, the land will enter CIPT in what is referred to as an “entry transaction”, starting a 10 year transition period. If the land is still held for a qualifying use after the 10 year transition period, the owner will be liable for an annual property tax of 1% of the site value ( i.e. the unimproved value).

How does CIPT work?

The CIPT process is as follows:

Once a property has entered CIPT, a subsequent sale will not attract stamp duty. (unless there has been a change in use). Other taxes such as Land Tax and Windfall Gains Tax will still apply.

At the end of the 10 year transition period the landowner will be liable for the CIPT, regardless of whether it was the owner at the time of the entry transaction or became the owner on a subsequent sale.

Example

Joe purchases a factory in October 2024. The timing for CIPT purposes is illustrated below:

As can be seen from the above, there needs to be a transaction where an interest in land of 50% or more is transferred. If the land is never transferred to a new owner, it will never enter CIPT and will not be subject to the annual property tax. Other exclusions from the CIPT are discussed below.

Qualifying land

Qualifying land is based on the Australian Valuation Property Classification Code (AVPCC) and includes:

The relevant code should be available on the Council rates notice for the property. If there are any concerns with the code allocated to the property you need to contact the Valuer-General as it is the Valuer-General that allocates the codes.

Student accommodation that is designed for occupation by higher education students and falls within the meaning of “commercial residential premises” for the purposes of the GST Act will also be subject to CIPT.

Where the land is used solely or primarily for one of the prescribed uses outlined above, it will fall within the CIPT. If land has a mixed use, e.g. retail shops with apartments above, it is up to the Commissioner to determine the primary use and effectively determining if the land will be subject to CIPT. In making this determination, the Commissioner will consider how the land is being used, taking into account relevant information such as the relative floor space, the economic and financial significance of each use, and the length of time in each use.

Land excluded from CIPT

Land that is exempt land under the Land Tax Act 2005 is not subject to CIPT. Although it will still enter the CIPT regime if the requirements for an entry transaction are satisfied, if the land remains exempt from land tax after the 10 year transition period ends, it will be exempt from CIPT.

Other exclusions from CIPT include:

• Residential land;
• Primary production land;
• Land used for community services purposes;
• Sport, heritage and cultural land; and
• National parks, conservation areas, forest reserves and natural water reserves.

Excluded transactions

It is important to note that not all transactions result in land entering the CIPT. Excluded transactions include:

• Land that is exempt from transfer duty or landholder duty, e.g. deceased estates;
• Transactions that are eligible for the corporate reconstruction concession;
• Grants, transfers or assignments of dutiable leases;
• Acquisitions of economic entitlements in relation to land; and
• Acquisitions of fixtures separate to land.

Other issues to be aware of

Subdivision or consolidation of land

Where CIPT land is subdivided, each of the subdivided lots will be CIPT land with the date the subdivided block enters CIPT being the same as the date the original land entered CIPT.

Where there is a consolidation of two or more properties into one property, the consolidated property will be CIPT land if:

• One or more of the properties to be consolidated was CIPT land; and 
• 50% or more of the area of the consolidated property is CIPT land.

Therefore, if CIPT land and property that is not CIPT land is consolidated and less than 50% of the area of the consolidated property is CIPT land, then the consolidated property will not be subject to CIPT. The property that was CIPT land prior to the consolidation is also taken to no longer be CIPT land.

The consolidated property will enter CIPT at the first date on which land that forms part of the consolidation entered CIPT. 

Changes in use

The impact of a change in the qualifying use of land after an entry transaction needs to be considered. For example, there may be a conversion of a warehouse used as a commercial property to a residential property. In this situation, CIPT would not apply. However, stamp duty would then apply, noting there would be a 10% reduction in stamp duty for each 31 December that has elapsed since the transfer.

Availability of loans for the duty payment on entry

Purchasers have the option of accessing a government transition loan from Treasury Corporation of Victoria for the duty payment on the entry transaction. The loan is a 10 year loan on a fixed market-based interest rate to be secured over the property.

Next steps

If you are considering an acquisition of commercial or industrial property or are contemplating a restructure where this type of property is involved, you need to consider the potential application of the CIPT.

If you have any questions about CIPT please reach out to your MGIDC advisor.