Answering FAQs about the new Commercial and Industrial Property Tax 

What is the Commercial and Industrial Property Tax (CIPT) Reform?

The Commercial and Industrial Property Tax (CIPT) Reform is effective from 1 July 2024. It aims to progressively abolish stamp duty on the sale of commercial properties and replaces the lost revenue with an annual Commercial and Industrial Property (CIP) Tax.

When does it commence?

The reform is effective from 1 July 2024. However, the CIPT will not apply to a commercial or industrial property until that property is sold or transacted.

How does it work?

The regime will apply to commercial and industrial property that is transferred or sold with contract and settlement dates after 1 July 2024. At settlement, stamp duty will apply to the transfer (relevant duty exemptions are still available, but if an exemption is available then the property will not enter into the CIPT regime). This is generally the last time that the property will be subject to stamp duty. Future transfers of the property will be exempt from duty provided the property continues to be used for commercial and industrial purposes.

Once a commercial or industrial property is transferred and duty paid, the land is now subject to the tax reform scheme. A ten-year ‘transition period’ will commence at this point. On the expiration of this transition period, CIP Tax will then be assessed against the property each year.

If someone purchases the property during the ten-year transition period, they do not need to pay stamp duty and will begin paying CIPT once the transition period ends.

CIP Tax will be charged at the rate of 1% of a property’s unimproved value. Exemptions that apply to land tax will also apply to CIP Tax.

What is considered a commercial or industrial property?

Property will be subject to the regime if it is commercial or industrial property that has a ‘qualifying use’ under the Australian Valuation Property Classification Code (APCC). Generally, this includes retail premises, offices and warehouses.

Property used solely as student accommodation will also be included.

What property will not enter the regime?

Property that has residential, primary production, community, sport, heritage or culture uses will be exempt from CIPT and normal stamp duty rules will continue to apply. Commercial or industrial property that has not been transferred or sold since 1 July 2024 will remain outside the CIPT regime.

Where a duty exemption is available, such as transfers of property involving deceased estates, transfers between spouses or partners and purchases by charities, the CIPT regime will not be triggered.

What happens if the use of the land changes?

Sometimes a commercial or industrial property that has entered the reform may change its use over time and convert to a ‘non-qualifying use’. For example, retail premises may be converted to a private residence. If this is the case, you must notify the Commissioner within 30 days of the change.

The property will then subsequently no longer be subject to CIPT tax, but ‘change of use duty‘ may apply if the owner of the property did not pay duty when they acquired it. Change of use duty will be reduced by 10% each year that passes following the relevant transfer.

For example, if a commercial property is purchased and used as commercial property, but after six years is converted into residential property, then:

• ‘change of use duty’ will be assessed and payable on that conversion;
• duty will be calculated as the amount of duty that would have been payable at the time when the property was purchased; and
• duty will be discounted by 60% in recognition of the six years that have elapsed since the purchase.

Are ‘mixed use’ properties subject to CIPT?

Some properties may have both ‘qualifying uses’ and ‘non-qualifying uses’, so it can be difficult to determine if they are subject to CIPT. For example, retail premises may have a residential property on the second level.

To determine the property’s eligibility, a primary use test will be conducted to see whether the property will enter into the CIPT regime when it is sold or transacted. The SRO will take into account various factors, such as the extent, intensity and economic value of the competing uses of the property. If they’re unsure, prospective purchasers of property may want to apply for a private ruling, although this may be cumbersome when purchasing a property on the open market.

What is the Government ‘Transition Loan’?

From 1 July 2024, the Government is giving purchasers the opportunity to access a transition loan to fund the upfront stamp duty that is payable on the acquisition of the property.

The transition loan will be provided by the Treasury Corporation of Victoria at a fixed rate which will be calculated at the time of the purchase. The Treasury Corporation will take a statutory charge over the property as security. Loans are repayable over ten years.

The loan is available to applicants who are:

• Australian citizens, permanent residents or an Australian business or entity (excluding self-managed superannuation funds); and
• the first party to purchase the commercial or industrial property in question since 1 July 2024; and
• acquiring the property for no more than $30 million; and
• have been approved for a loan with a bank or similar institution.

Importantly, this last criterion may make some applicants ineligible (for example, where the applicant has used a related-party loan).

Is Commercial and Industrial Property Tax different to land tax?

CIP Tax and Land Tax are not the same thing. CIP Tax is in addition to land tax.

As CIPT does not apply until your ten-year transition period has ended, you will only pay land tax in the first 10 years. After that, your property will be subject to both taxes.

Learn more about land tax and how it works here.

What to do now

The new Commercial and Industrial Property Tax reform is quite complex and changes the way transactions of commercial and industrial properties work.

To discuss your commercial and industrial property transactions further for the new financial year, please get in touch with our Aintree Group Legal team here.

This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your lawyer.