On 21 May 2024, the Commercial and Industrial Property Tax Reform Act 2024 received Royal Assent, officially making the Commercial and Industrial Property Tax (CIPT) law. The new CIPT regime will apply to eligible transactions from 1 July 2024.
Key features
- From 1 July 2024, qualifying land will enter the CIPT regime upon the occurrence of an entry transaction, an entry consolidation or an entry subdivision.
- Land will qualify for the regime if it has been allocated an Australian Valuation Property Classification Code (AVPCC) in the ranges of 200 to 499 (commercial, industrial and extractive industries) or 600 to 699 (infrastructure and utilities land).
- Land that is used solely or primarily for eligible student accommodation will also qualify for the regime.
- The CIPT will not apply to properties coded for residential, primary production, community services or sport, heritage and cultural purposes.
- From 1 July 2024, if an interest of 50% or more in a qualifying property is sold, the entire property will enter the CIPT regime, with CIPT payable after a 10-year transition period.
- Once land enters the regime, stamp duty will be payable one final time, and subsequent sales of the same property will be exempt from duty (on the basis that the land continues to be used for commercial or industrial purposes).
- Following a transition period of 10 years, the CIPT will apply annually at a flat rate of 1% of the site value of the land (0.5% for build-to-rent land).
- Properties that are sold pursuant to contracts entered into before 1 July 2024 will not enter the regime, even if settlement occurs after that date.
Purchasers seeking to invest in commercial or industrial land on a long-term basis should seek urgent advice as to whether they should enter into a contract of sale prior to 1 July 2024. This is because the first purchaser of land that causes the land to enter the CIPT regime will be liable for both stamp duty, and the CIPT after a period of 10 years.
Overview of CIPT regime
When will qualifying land enter the regime?
Land will enter the regime if any of the following occur on or after 1 July 2024:
- an entry transaction;
- an entry consolidation; or
- an entry subdivision.
An entry transaction will occur where 50% or more of the property is transacted, either via a dutiable transaction or a landholder transaction. However, a property will remain outside of the CIPT regime if the transaction is exempt from duty or qualifies for a corporate reconstruction or consolidation concession.
Any subsequent sale of that property which attracts stamp duty (i.e. with no exemption) will then enter the CIPT regime at that later time.
Can interests in land be aggregated to reach the 50% entry threshold?
Yes. Separate acquisitions of less than a 50% interest in qualifying land may be aggregated so that the land is bought within the CIPT regime.
Broadly, the State Revenue Office (SRO) can aggregate transactions where contracts of sale are entered into within 12 months, and the transactions together give effect to ‘substantially one arrangement’. The SRO can also aggregate transactions that involve associated persons (i.e. such as relatives, related bodies corporate, and trustees of related trusts).
Once land is within the regime, can stamp duty potentially be assessed in the future?
Yes, in certain circumstances.
If land within the regime undergoes a change of use to a non-qualifying use (e.g. residential), stamp duty may become payable on any transaction that received an exemption from duty i.e. there will be a claw-back of any duty exemption. Where claw-back applies, duty will be calculated based on the value of the land at the time of the initial exempt dutiable transaction, reduced by 10% for every calendar year that has elapsed since that date.
We anticipate the SRO will closely monitor council registers of planning permits issued, to determine if any CIPT land has had a change of use. If, for example, the owner of CIPT land obtains a planning permit for residential development, the SRO is likely to move to recover any unpaid duty on that land.
After acquiring an initial 50% interest in qualifying land and paying the required stamp duty, will you have to pay any further stamp duty upon increasing your interest in the same land?
Yes, but only if the subsequent increase in your interest in the land occurs within a three-year period of the initial transaction.
Where land enters the CIPT regime via a transaction involving the transfer of less than a 100% interest in that land, stamp duty will still be payable on the acquisition of any further interests in the land within a three-year period, or until full duty has been assessed on the land (whichever occurs sooner).
For example, a purchaser acquires a 50% interest in land on 1 July 2024, and pays stamp duty calculated on that 50% interest. As a result of this entry transaction, the whole land will enter the CIPT regime. If, on 1 July 2026, the purchaser acquires a further 20% interest in the same land, stamp duty will be payable on this 20% interest. If, however, this further interest is acquired on 1 July 2028, stamp duty will not be payable because this acquisition is outside of the three-year period.
Who will be entitled to access the Government-funded loan for the final stamp duty?
Australian businesses, citizens and permanent residents on transactions where the value of the relevant property does not exceed $30 million. The loan will not be available to foreign purchasers or self-managed superannuation funds.
The loan will also not be available to fund the final stamp duty on landholder transactions.
Can the transition loan be transferred to a subsequent purchaser?
No. The borrower will not be permitted to transfer or novate the transition loan to a subsequent purchaser of the property. Accordingly, the balance of the loan must be repaid in full before the property is transferred. As the Corporation will have a first-ranking charge on the land, it can recover amounts owing under the loan (including accrued interest).
Comment
The above information is intended to provide a snapshot of the new CIPT regime, highlighting several issues that purchasers must urgently consider. Further detail regarding the new regime is available here.
If you are considering acquiring commercial or industrial land, the timing of entry into any contract will be critical in determining whether you will have ongoing exposure to the CIPT after the 10-year transition period.
More information
If you would like to discuss the implications of the new CIPT regime, please contact our Tax or Property teams.
| Disclaimer: This publication contains comments of a general nature only and is provided as an information service. It is not intended to be relied upon, nor is it a substitute for specific professional advice. No responsibility can be accepted by Rigby Cooke Lawyers or the authors for loss occasioned to any person doing anything as a result of any material in this publication.
Liability limited by a scheme approved under Professional Standards Legislation. © 2024 Rigby Cooke Lawyers |