Victorian Budget 2023–24

Yesterday the Victorian Treasurer released the state’s Budget for 2023–24, which included a number of proposed tax changes.

We have considered each announcement in detail.

COVID-19 Debt Levy

As part of the Covid Debt Repayment Plan, a temporary and targeted levy will be introduced for 10 years, from 1 July 2023 until 30 June 2033.  The COVID-19 Debt Levy has two distinct components: a payroll component and a landholdings component.

From 1 July 2023, the payroll component will temporarily levy an additional payroll tax on large businesses based on the size of their annual national payrolls, as follows:

• National payrolls above $10 million - additional payroll tax of 0.5%; and
• National payrolls above $100 million –additional payroll tax of 1.0%.

The additional payroll tax rates will be imposed on the Victorian share of wages which exceeds the thresholds above.  Payroll tax exemptions will continue to apply for hospitals, local councils, and charities.

From 1 January 2024, the landholdings component will reduce the tax-free threshold for general land tax rates from $300,000 to $50,000.

For general taxpayers, a temporary fixed charge will be levied at different rates based on the value of the taxpayer’s landholdings, as follows:

• Landholdings between $50,000 and $100,000 - a temporary flat surcharge of $500;
• Landholdings between $100,000 and $300,000 - a temporary flat surcharge of $975; and
• Landholdings above $300,000 - a temporary flat surcharge of $975 plus 0.1% of the value of their landholdings above $300,000.

For trusts that hold land, a temporary fixed charge will be levied at different rates based on the value of the trust’s landholdings, as follows:

• Landholdings between $50,000 and $100,000 - a temporary flat surcharge of $500;
• Landholdings between $100,000 and $250,000 - a temporary flat surcharge of $975; and
• Landholdings above $250,000 - a temporary flat surcharge of $975 plus 0.1% of the value of their landholdings above $250,000.

Existing land tax exemptions will continue to apply, including for primary places of residence, land used by charities and farm land. This means the value of exempt property is not included in the total landholding value.

A move from stamp duty to property tax on commercial properties

From 1 July 2024, the current stamp duty system for commercial and industrial properties will move to an annual property tax. A transition period will be provided to landholders on the first purchaser of a commercial or industrial property after 1 July 2024, giving landholders a choice between either:

• Paying the property’s final stamp duty liability as an upfront lump-sum; or
• Paying fixed instalments over 10 years equal to stamp duty and interest with a government-facilitated transition loan.

These proposed new arrangements will not apply to the current owner of any commercial or industrial property purchased before 1 July 2024.  Importantly, once a property does enter the new system after 1 July 2024, the annual property tax will apply and stamp duty will never again be imposed.

Moving forward, the annual property tax for commercial and industrial property will be set at 1.0% of the property’s unimproved land value.

The final details of the transition will be confirmed by the end of 2023 after a consultation with business and industry groups during the next few coming months.

To be clear, this reform does not apply to residential properties.

Increasing the payroll tax-free threshold

The payroll tax-free threshold will increased as follows:

• From 1 July 2024 - from $700,000 to $900,000; and
• From 1 July 2025 - a further increase from $900,000 to $1 million.

‘Phase out’ the benefit of tax-free threshold for larger businesses

From 1 July 2024, a “phase out” of the tax-free threshold will be implemented, as follows:

• Reducing the tax-free amount for each dollar a business pays in wages over $3 million; and
• There will be no tax-free threshold for businesses with wages over $5 million.

Removing payroll tax exemption for high-fee non-government schools

From 1 July 2024, the payroll tax exemption for high-fee non-government schools will be removed, in line with the payroll tax treatment of government schools.

The Minister for Education and the Treasurer will make an announcement to confirm the non-government schools that will remain exempt from payroll tax.

Increasing the absentee owner surcharge rate

From 1 January 2024, the absentee owner surcharge rate will increase from 2.0% to 4.0% and the minimum threshold for non-trust absentee owners will decrease from $300,000 to $50,000.

In other words, if the total taxable value of Victorian land held by a non-trust absentee owner is equal to or exceeds $50,000 the surcharge will be payable. There will be no change to the minimum threshold of $25,000 for trust taxpayers.

Land tax exemption extended when construction or renovation of a principal place of residence is delayed due to builder insolvency

From 1 January 2024, where additional time is required to complete construction on a principal places of residence due to builder insolvency, the State Revenue Office will have the discretion to extend the land tax exemption for (up to) 2 additional years.

In line with the current exemption, the owner must not be entitled to apply the principal place of residence exemption to a second property.

Land transfer duty and land tax relief when providing a home for a relative with a disability

From 1 July 2023, in circumstances where the occupant is eligible to be a beneficiary of a Special Disability Trust, the land transfer duty deduction threshold will be increased from $500,000 to $1.5 million for principal place of residence transfers.

Also from 1 July 2023, eligibility for the Special Disability Trust land transfer concession will be expanded to include those transferring a home valued up to $1.5 million to an individual eligible to be a beneficiary of a Special Disability Trust, even where no trust has been established.

From 1 January 2024, 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 (where no consideration/rent is provided), even where no trust has been established.

Land tax transfer duty concessions expanded for pensioners

For contracts entered into from 1 July 2023, the land transfer duty pensioner exemption and concession thresholds will be aligned with the thresholds for first home buyers, at $600,000 and $750,000 respectively.

In addition, eligibility will be assessed on the total value of the purchase.

Abolish business insurance duties

Business insurance duty will be abolished over a 10-year period, by reducing the current 10% rate by 1.0% per year.