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Ashfords 2023/24 Victorian State Budget Highlights

Written by Craig Smith, Business Services Partner

On 23 May 2023, the Victorian Treasurer, Mr Tim Pallas, unveiled the State's Budget, which includes a levy of additional payroll tax on large businesses and reforms to abolish lump-sum stamp duty for commercial and industrial properties.

Big businesses, holiday-home owners and landlords will be required to foot the bill for the Victorian government's Covid-19 debt. 

Many Jobs in public service will be slashed, with between 3,000 to 4,000 corporate and office jobs set to go as part of an efficiency drive.

Here is a summary of the key takeaways:

PAYROLL, LAND TAX & COVID-19 DEBT

The Covid Debt Repayment Plan in the Budget will introduce a temporary and targeted levy that will apply for ten years until 30 June 2033. The COVID-19 Debt Levy has two components: a payroll component and a landholding component.

The payroll component will temporarily levy an additional payroll tax on large businesses with national payrolls above $10 million a year from 1 July 2023. A rate of 0.5% will apply for companies with national payrolls above $10 million, and businesses with national payrolls above $100 million will pay an additional 0.5%. The additional rates will be paid on the Victorian share of wages above the relevant threshold. Payroll tax exemptions, such as those for hospitals, charities, and local councils, and wages paid for parental and volunteer leave will continue to apply.

The landholdings component will amend the land tax schedule from 1 January 2024. The tax-free threshold for general land tax rates will decrease from $300,000 to $50,000.

For general taxpayers, a temporary fixed charge of $500 will be levied on taxpayers with landholdings between $50,000 and $100,000, and a temporary fixed charge of $975 on taxpayers with landholdings between $100,000 and $300,000. For general taxpayers with property landholdings above $300,000 (and trust taxpayers with property holdings above $250,000), land tax rates will temporarily increase by $975 plus 0.1% of the value of their landholdings above $300,000.

Existing land tax exemptions, including for primary places of residence (i.e. family home), primary production land and land used by charities, will continue to apply.

COMMERCIAL PROPERTIES: TRANSITION FROM STAMP DUTY TO PROPERTY TAX

The lump-sum stamp duty system for commercial and industrial properties will transition to an annual property tax from 1 July 2024.

To smooth the transition, the first purchaser of a commercial or industrial property after 1 July 2024 will be able to choose to either pay the property's final stamp duty liability as an upfront lump sum or transition to an annual payment immediately by opting to pay fixed instalments over ten years equal to stamp duty and interest with a government-facilitated transition loan. The annual property tax will be payable from 10 years after the transaction.

These arrangements will not apply to the current owner of any commercial or industrial property purchased before 1 July 2024. However, once a property enters the new system after this time, stamp duty will never again be payable on a transaction, and the annual property tax will apply.

The annual property tax that will ultimately replace stamp duty for commercial and industrial property will be set at 1% of the property's unimproved land value. The Victorian government will consult with businesses and industry in the coming months, with the final form of the transition to be detailed by the end of the year. This reform does not apply to residential properties.

PAYROLL TAX-FREE THRESHOLD INCREASED, BENEFIT OF THRESHOLD FOR LARGER BUSINESSES PHASED OUT

Small businesses have been offered some budget relief, with from 1 July 2024, the payroll tax-free threshold rising from $700,000 to $900,000 and subsequently increasing further to $1 million from 1 July 2025.

The government will also introduce a "phase out" to better target the benefits of the tax-free threshold to small businesses. This phase-out will reduce the tax-free amount for each dollar a business pays in wages over $3 million. Businesses with wages over $5 million will not benefit from the tax-free threshold. These changes to payroll tax will commence on 1 July 2024.

PAYROLL TAX EXEMPTION FOR HIGH-FEE NON-GOVERNMENT SCHOOLS REMOVED.

Victoria's wealthiest private schools have also been asked to contribute to the budget repair. 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 will determine, with the consent of the Treasurer, the non-government schools that will continue to be exempt from payroll tax.

HARMONISATION OF ABSENTEE OWNER SURCHARGE RATE WITH NSW

From 1 January 2024, the absentee owner surcharge rate will increase from 2% to 4%, and the minimum threshold for non-trust absentee owners will decrease from $300,000 to $50,000. This increase means the surcharge will be payable if the total taxable value of Victorian land held by a non-trust absentee owner is equal to or exceeds $50,000. There will be no change to the minimum threshold for trust taxpayers. This measure will align Victorian and NSW rates and help ensure overseas property investors contribute to providing Victoria's government services and infrastructure.

EXTENDED LAND TAX EXEMPTION WHERE CONSTRUCTION OF RENOVATION OF PRINCIPLE PLACE OF RESIDENCE IS DELAYED DUE TO INSOLVENCY

From 1 January 2024, the Commissioner of State Revenue can extend the land tax exemption for principal places of residence under construction or renovation for up to 2 years. This discretion will apply when additional time is required to complete construction, due to builder insolvency. Consistent with the existing exemption, the owner must not be entitled to another principal place of residence exemption.

OTHER MEASURES

The Budget also included measures to:

  • Expanding tax concessions for families providing a home for a relative with a disability: Land transfer duty and land tax relief will be provided in circumstances where the occupant is eligible to be a beneficiary of a Special Disability Trust.
  • Flood Recovery: the Budget includes an extra $677 million for ongoing flood recovery on top of the $1.8 billion promised last year.
  • Abolish business insurance duties: Business insurance duty to be abolished over ten years. (Currently 10%).

All the details of the items that came out of the Budget are available in Budget Paper No 3 and Victorian Treasurer's press release Stamp duty reform to boost business, industry and jobs.

If you have any questions about the State Budget, please don't hesitate to contact your Ashfords Trusted advisor.


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