The government of Victoria has recently announced a series of tax changes that will have implications for residents, property owners, businesses, and investors in the state. These reforms aim to streamline taxation systems, encourage investment, and ensure fairness across various taxpayer segments.
Increases to Residential Land Tax
Normally, the State Budget is not as noteworthy as the Federal Budget, but there is wide reaching change pertaining to land tax. Starting from January 1, 2024, and spanning a 10-year period, several modifications will be made to the land tax structure. While exemptions will continue to be granted for properties such as main residences, the tax-free threshold will witness a substantial reduction from $300,000 to $50,000. This adjustment will expand the scope of properties subjected to land tax.
Under the new framework, rental properties, particularly apartments, are expected to come under the land tax system. Properties valued between $50,000 and $100,000 will attract a flat tax of $500, while those valued between $100,000 and $300,000 will be subject to a flat tax of $975. For properties valued over $300,000, the flat tax will be $975 plus existing tax rates, along with an additional 0.1% charge. Trusts will follow a similar structure, but with a threshold of $250,000 instead of $300,000.
To ensure accurate tax compliance, the state government could utilize data matching techniques through the Residential Tenancies Bond Authority and rental estate agents. This will enable authorities to verify the ownership of investment properties more effectively.
Replacing Commercial and Industrial Properties Stamp Duty
Another notable change involves the replacement of commercial and industrial stamp duty. Effective from July 1, 2024, the current system of land transfer duty, commonly known as stamp duty, on commercial and industrial properties will be phased out. In its place, an annual property tax will be introduced, which will be equivalent to 1% of the unimproved value of the land. Existing properties will remain unaffected until they are transferred, and during the ten-year transition period, property transactions will still attract stamp duty. However, the duty can be paid upfront or spread over a decade with an interest charge.
Increase to the Absentee Owners Surcharge
Foreign investors residing outside Australia will face an increase in the absentee owner surcharge on their land tax. The surcharge will rise from 2% to 4%, and the tax-free threshold for absentee owners will decrease from $300,000 to $50,000, aligning it with the changes for domestic investors.
Updating Payroll Tax Thresholds
The payroll tax threshold will also undergo significant adjustments. On July 1, 2024, the payroll tax-free threshold will increase from $700,000 to $900,000. Furthermore, on July 1, 2025, it will rise to $1 million. This means that businesses with employee costs between $700,000 and $1 million will no longer be liable to pay payroll tax. In comparison, New South Wales (NSW) and Queensland (QLD) have higher payroll tax-free thresholds of $1.2 million and $1.3 million, respectively. Additionally, the tax-free threshold will gradually phase out between $3 million and $5 million. Businesses with employee costs exceeding $5 million will receive no deduction and will be subject to payroll tax on all wages.
Additional Payroll Tax on Large Employers
From July 1, 2023, businesses with annual wages over $10 million will face a payroll tax surcharge. This additional tax will amount to 0.5% on Victorian wages. For companies with wages surpassing $100 million annually, the surcharge rate will be 1%.
Removal of Duty on Business Insurance
Furthermore, the business insurance duty will be phased out over a ten-year period starting from July 1, 2024. Each year, the rate of duty, currently set at 10%, will decrease by 1% until it ceases to exist. This gradual reduction aims to alleviate the burden on businesses while facilitating a smooth transition.
In conclusion, the tax reforms introduced by the Victorian government are poised to reshape the taxation landscape and foster economic growth in the state. These changes, ranging from modifications in land tax and the replacement of stamp duty to adjustments in payroll tax thresholds, surcharges, and the phasing out of business insurance duty, will have significant implications for various stakeholders. It is crucial for individuals, property owners, businesses, and investors to familiarize themselves with these changes, adapt their financial strategies accordingly, and ensure compliance in the evolving tax environment.