Managing director of commercial brokerage Stamford Capital, Domenic Lo Surdo has welcomed the Victorian government’s decision to abolish stamp duty on commercial and industrial properties, although he said several questions remain about the flat tax replacement.
The Victorian government announced on Tuesday that it would deliver the reform to commercial and industrial property stamp duty as part of the Economic Growth Package included in its State Budget for 2023-24. The lump-sum system will transition to an annual property tax from July 1, 2024.
Properties will transition to the new system as they are sold from the middle of 2024, with the annual property tax to be payable from 10 years after the transaction. The government said that the annual property tax will be a calculated at a flat 1% of the property’s unimproved land value.
The government said in order to make the transition smoother, the first purchaser of a commercial or industrial property after July 1, 2024, could choose to either pay the property’s final stamp duty liability as an upfront lump sum or opt for the annual payment over 10 years.
Lo Surdo (pictured above left), who is also the vice-president of CAFBA, said reducing transaction costs for purchasers would improve buyer confidence around the state.
“Feedback from our clients has focused heavily on the inability to purchase assets within budget,” Lo Surdo said. Â
“The continual rise in cost of capital is obviously a key driver in this, and it is having a major impact on purchasing capacity. Any reduction in the transaction cost for purchasers will likely inject some positivity back into their mindset, reduce transaction friction and add to confidence.”
However, Lo Surdo said that there were still several questions about how the new flat tax would factor into transactions given the proposed ongoing tax. “It will be very interesting to see which option comes out best for purchasers and investors in the long run. But it is a positive sign to see the government responding to calls for reform on stamp duty,” he said.
Simplicity Loans & Advisory managing director Matthew Johnson (pictured above right), whose commercial finance brokerage has a presence in Melbourne, also said that the stamp duty abolition was welcome. He said stamp duty was inherently a very inefficient tax, and in many cases an impediment to people buying and selling assets.
“Any time that it is proposed stamp duty be removed I think is a good thing,” Johnson said.
However he said that, while it was possible that people buying and selling might be better off under the new tax if they were trading assets over a shorter period of time, with a property tax replacement it would be “interesting to see how it plays out” for certain purchasers over the longer term.
Johnson said that for self-employed owner occupiers in commercial properties – who may be purchasing a property they are renting, or investing in a premises to trade out of, for example – the move could be positive, generating revenue and business out of the property asset.
“For investors, the jury is still out. For those looking at commercial property as an investment class, while on the upfront purchase you reduce the transaction cost, it is obviously an additional ongoing cost as part of the investment that will need to be factored in by these clients,” he said.
Government wants to stimulate Victorian business activity
The Victorian Government said that removing upfront costs on commercial or industrial buildings would make it easier for businesses to get established and thrive, boosting economic activity, jobs and growth. Victorian Treasurer Tim Pallas said business and industry wanted the reform, and it would enable businesses to be more dynamic and agile, to grow and employ more workers.
“We’re removing barriers to larger investments, accelerating business growth and helping our economy grow even stronger,” Pallas said.
Victorian Chamber of Commerce and Industry CEO Paul Guerra said the chamber had been working with the government on the “landmark and generational productivity reform which businesses across Victoria will welcome”.
“This is exactly the type of progressive tax reform that is required to free up stamp duty charges which will accelerate building upgrades, stimulate investment in commercial property and free up more capital,” Guerra said.
The new arrangements will not apply to the current owner of any commercial or industrial property purchased before July 1, 2024. However 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.
The government said the annual payment would free up capital. For example, it said a retail business could be more confident about moving to a new location, or a transport operator that required additional space will have fewer barriers to expand. It expects the cumulative increase in the size of the Victorian economy as a result as being up to $50 billion in net present value terms.
It said the reform would not apply to residential properties, and that it would consult with business and industry in coming months to finalise details of the transition.
