As you may have picked up in recent media, the Victorian Government has passed new legislation which will, over time, replace transfer (stamp) duty with a new tax scheme for commercial and industrial properties – the Commercial and Industrial Property Tax (‘CIPT’) scheme.
The Commercial and Industrial Property Tax Reform Act 2024 (Vic) (‘CIPT Act’) came into effect from 1 July 2024 and affects all contracts of sale for commercial and industrial property which are signed and settled after 1 July 2024.
Read on to find out the key facts which organisations need to know about the new scheme.
CIPT will be an annual payment in addition to existing rates and taxes on the land. The rate of CIPT will be equal to 1% of the unimproved value of the land. CIPT will apply:
CIPT will commence to be payable by the owner of the land at the time when the 10-year transition period expires.
‘Qualifying Use’ is defined in the CIPT Act as a property which:
These codes will be displayed on the property’s council rates statement, or a land tax clearance certificate provided by the State Revenue Office.
Properties with a mixed use will be within the CIPT net where the property is used primarily for a Qualifying Use.
Properties with a Qualifying Use will enter the CIPT scheme where one of the following four property dealings occurs after 30 June 2024:
Importantly for organisations with non-profit status, the sale of land with a Qualifying Use is not an entry transaction where the sale is exempt from duty pursuant to the Duties Act 2000. For example, where a charitable entity purchases land with a qualifying use and is entitled to an exemption from transfer duty, that purchase is not an entry transaction and therefore will not trigger entry into the CIPT scheme.
The following process will apply to any sale of land with a Qualifying Use where the contract of sale was signed after 1 July 2024 and no exemption is available:
Importantly, vendors cannot adjust CIPT under the contract of sale or otherwise make the purchaser liable to reimburse the vendor for any CIPT liability, except where the sale price exceeds the ‘high value threshold’ (currently set at $10 million).
Landlords also must not require any residential or retail tenants (as defined by the Residential Tenancies Act 1997 and Retail Leases Act 2003 respectively) from paying or reimbursing the CIPT. However, there is no restriction from recovering CIPT from non-retail commercial tenants.
The Victorian Government is offering transitional loan schemes to finance the payment of transfer duty on the Entry Transaction. This is an optional program to allow purchasers to spread out the cost of transfer duty over a 10 year period at a fixed interest rate.
The loan will be secured with a statutory charge over the property and must be repaid over the 10 years following settlement (i.e. the transition period).
If, during the transition period, the property ceases to be used for a qualifying use (e.g. it is redeveloped into residential premises), no CIPT will be payable. However, the next sale of the property will be subject to the usual transfer duty.
If the transition loan scheme applies to the property, the loan must be repaid immediately upon the change of use or sale of the property.
CIPT is chargeable on land which, at 31 December in the preceding year:
Therefore, properties which qualify for an exemption from land tax (such as properties used and occupied exclusively for charitable purposes) will also receive an exemption from paying CIPT.
The Commercial Real Estate team at Moores has extensive experience in all types of property dealings and can provide tailored advice on how CIPT may impact on your organisation’s properties.
Please contact us for more detailed and tailored help.
Subscribe to our email updates and receive our articles directly in your inbox.
Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.
The Age has reported that Preshil in Kew is selling a section of its campus to help meet its payroll tax bill and other liabilities. Numerous independent schools we advise in Victoria are grappling with how to cover their payroll tax bill from 1 July 2024, on top of already increased operation costs in this high inflation environment. Preshil will not be the only school looking at a land sale to free up some cash. But while a sale of school land is a quick way to get some money, once the land is sold a school loses the ability to grow its student numbers at that campus as much as it otherwise could have. This article considers some of the other things schools could do with their (currently) surplus land to generate money while preserving their future ability to develop and grow.
If a school has unused land or space, selling is not the only way to put it to use. A lease can generate income while preserving the long-term options for the land. Long-term ground leases can work particularly well for vacant land with no foreseeable use for the school. A long-term ground lease can often justify a tenant undertaking building works, the cost of which can be amortised over a long period (typically 20+ years). A council, other education provider or retirement village operator may be happy to take a long-term lease and build a facility approved by the school. Following the expiry of the lease, the land and its improvements revert to the school for it to use as it sees fit.
Some schools may consider improving their surplus property before leasing. This approach requires the school to spend in order to obtain a higher rent from a commercial tenant than it would under a ground lease referred to above where the tenant undertakes the works. These developments could be ones where the tenant gets exclusive possession or ones for joint use between the school and the tenant. Examples of joint use developments include facilities that can be used for weekend tuition or sport facilities hired to clubs or leagues. For schools that are cash poor, which many are in 2024, the significant upfront investment required may make this option unviable.
This scenario is worth considering where a property has potential for multi-level development. The basic concept is for the school to retain facilities (either existing facilities or new facilities) at ground level but sell the right to develop above those facilities. While this option does involve the loss of long-term development potential, a new school building at the bottom of a multi-level development may sufficiently future proof the school such that the air rights above that building will never be needed. There are a range of considerations around this option, starting with what use is a suitable ‘neighbour’ for the school and whether the school should take the role of being the developer and sourcing the finance. Some schools may prefer just to be the landowner with oversight and rights required to protect its interests.
This article outlines just three alternatives to selling school land. There are other alternatives, including combinations of the ones outlined above. This article has done its job if it encourages a school thinking of a land sale to consider options which better preserve the school’s ability to grow. While it can be difficult for schools to fully understand and explore their options when it comes to dealing with their land, a school should not sell the family silver before it has done so.
Moores has a strong history of supporting the education sector, from independent and catholic schools, to early childhood providers, higher education and education governance and industry bodies.
We are more than happy to guide your school through the process of determining how to best utilise any surplus land.