New tax laws change the game for Victorian investors

Instead, a Commercial and Industrial Property Tax (CIPT) will take effect 10 years after the last transaction involving stamp duty and will be charged at a flat rate of 1 per cent of a property’s unimproved land value per annum.

The intent is to remove the upfront cost of buying commercial properties in the hope of giving Victorian businesses the means to invest in other aspects of growing their operations.

Because it will take some time before the stamp duty burden is lessened, the government has introduced a transition loan to help eligible purchasers pay stamp duty, allowing them to avoid some of the upfront costs of purchasing a commercial property.

It’s a big change for investors in the state, but with an extensive transition time, property owners have time to figure out their next move, and commercial property expert Scott O’Neill, who is also the founder of buyers agency Rethink Investing, said it would certainly be wise for Victorian investors to “reassess their investment strategies given the new landscape”.

In the immediate future, he said Victorian investors “do not need to do anything differently”. Looking ahead, they should consider how the transition and eventual implementation of the CIPT could impact their plans to sell or buy.

The Victorian government has already specified that landlords will not be able to pass on the CIPT to retail tenants as specified in the state’s Retail Leases Act 2003, so it’s important that investors consider that in the long-term equation of their cash flow.

Ultimately, however, O’Neill expects it to bring a level of vitality to Victoria’s commercial sector, based on similar changes in other states.

“In markets without full stamp duty for commercial, like South Australia and the ACT, investors often benefit from the savings on upfront capital, which can lead to long-term capital growth due to increased purchasing power from a larger initial deposit. Therefore, the recent reforms are expected to positively impact Victoria’s commercial property market,” he said.

But with Victoria’s long transition to the scheme, O’Neill noted that “the actual impact of Victoria’s changes remains to be seen”, and he opined other states that might be considering a similar move would be watching closely.

“Observing the outcomes in Victoria will be crucial for other states as they evaluate the effectiveness of this approach,” he said.

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