From 1 July 2024, a purchaser of commercial or industrial property will have a choice to either pay stamp duty upfront (as per usual) or pay fixed instalments of that stamp duty liability (plus interest) over a 10-year period under a government-facilitated loan as a way to transition into the new regime. Ten years after settlement of the sale transaction, the land will be subject to an annual property tax equal to 1% of the unimproved value of the land.

There is no draft legislation at this stage, and the Government intends to consult with industry in relation to the finer details of the new regime. The Government has released a further Fact Sheet since the initial announcement providing some further details.

Maddocks will be heavily involved in the consultation process through membership with various industry bodies, including the Property Council of Australia (PCA) and the Urban Development Institute of Australia (UDIA).

Until the consultation commences, it is timely to identify some of the issues we think the Government will need to consider in the design and implementation of the new regime, which are discussed below.

The definition of commercial and industrial property

As a starting point, it is important to determine which properties will be subject to the new regime. The definition of commercial and industrial property could be based on:

• the current use of the land, e.g. using Australian Valuation Property Classification Codes (AVPCC) similar to how the existing duty concession for purchasers of certain regional commercial and industrial land is administered;
• the potential use of the land, e.g. based on zoning or the existing built structure on the land;
• future intended use (regardless of the existing profile of the land); or
• a combination of some or all of the above.

Further, the definition of commercial and industrial property will need to take into consideration whether build-to-rent developments, commercial residential premises (such as hotels and motels), retirement villages, aged care facilities and primary production land should be subject to the new regime.

Mixed-use sites

In the case of mixed-use sites that combine commercial, industrial, and residential elements, the Government will also need to consider how the new regime will apply (for both the 10-year government-facilitated loan and the annual property tax). Will the dominant use of the land determine whether it is commercial or industrial property, or will an apportionment exercise be required? Apportionment would seem to be the more logical approach (similar to apportionment that already occurs for land tax purposes), as this is likely to be easier administratively than proving or disproving a “dominant use”.

Change of use

The new regime will have to also deal with situations where the use or profile of the land changes or is proposed to change. For example, should the new regime apply to commercial property that is acquired with the intention to convert the land into a residential apartment tower? From a policy perspective, we imagine the answer should be ‘no’. Conversely, if commercial property is brought into the new rules and then converted into residential property, will the annual property tax continue to apply, or will the land exit the regime and become subject to stamp duty again.

Further it is unclear how the rules should operate where the land is subdivided or where the land is consolidated with other land not subject to the regime (noting that the announcement by Government was that:

“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”.

It will be interesting to see if this remains the case even in the above scenarios.

Sale of land during the 10-year period

If a purchaser opts to not pay the stamp duty upfront and instead chooses to pay the annual instalments, the new regime will need to deal with what happens to the outstanding instalments where the land is sold during the 10-year transitional period.

The Fact Sheet clarifies that the original purchaser will be obliged to make the remaining repayments following a subsequent sale and the new purchaser will not be subject to duty or the annual property tax until the end of the 10-year transitional period of the original purchaser concludes.

Landholder and economic entitlement acquisitions

Where a person acquires shares or units in an entity that amounts to a landholder acquisition or acquires an interest that amounts to an economic entitlement, it is not clear whether this transaction should result in the land entering the new rules or whether entering the new rules should be limited to direct acquisitions of land.

entitlement rules would be amended so that landholder duty or economic entitlement duty would not apply where the land in question is commercial or industrial land or whether the landholder rules would exclude commercial or industrial land where an entity held other land. Given the overarching policy intent of this reform, we would expect this to occur to align the landholder duty rules and economic entitlement rules with the transfer duty rules.

Interaction with concessions, exemptions and other taxes

If a purchaser is entitled to an exemption or concession (for example the regional commercial and industrial concession), it is not clear whether the transaction should result in the land entering the new rules and, if so, whether the purchaser has the option of spreading the concessional duty over time. We expect the land would transition into the new rules in such circumstances given the policy of intent of the regime.

In closing

There are still many crucial questions which need to be addressed in the design and implementation of this landmark stamp duty reform. In order for the reform to achieve the Government’s desired outcomes of boosting economic growth and encouraging investment through removing transaction barriers, the new regime will need to be crafted carefully with thorough consultation with industry.

If you would like to raise any issues for consultation or would like further information on this reform, please contact us to discuss.