It is commonly accepted that stamp duty is an inefficient tax as the significant upfront cost (6.5% standard rate for properties above $2 million and an additional 8% surcharge for foreign buyers of residential properties) can deter transactions of real estate that may generate greater economic activity or housing supply.

The Victorian Government has issued legislation seeking to replace stamp duty for commercial and industrial properties (CIP) with a 1% annual property tax (based on unimproved land value) from 1 July 2024.

Unfortunately there are currently no announcements regarding any stamp duty reforms regarding residential properties which can distort housing supply decisions and transactions.

This article summarizes the CIPT regime as it’s currently drafted and some frequently asked questions and answers.

How it works

In general, the final stamp duty will be payable on the first dutiable purchase of commercial and industrial properties (including student accommodation) or its landholders for contracts entered from 1 July 2024.

Once the property enters the CIP tax (CIPT) regime, an annual tax of 1% (or 0.5% for land eligible for build-to-rent (BTR) concession) of the unimproved land value of the property will be payable after 10 years from the date it enters the regime.

Duty on subsequent sale of the same interest that caused the land to enter the CIPT regime will no longer be subject to duty. However, for entry transactions involving at least 50% interest but less than 100% interest, duty may still be payable in relation to purchase of the remaining interest even though the entire property might have already entered in the CIPT regime.

To help fund the final stamp duty, the Government offers a transition loan payable over 10 years at a fixed commercial interest rate for Australian citizens, permanent residents or businesses purchasing commercial or industrial properties for $30 million or less. The loan will need to be paid out at settlement when the property is sold before 10 years.

Frequently asked questions

What is commercial or industrial properties for the purpose of CIPT?

Commercial or industrial properties for CIPT purposes are either student accommodation or properties with allocated Australian Valuation Property Classification Code (AVPCC) of 200s, 300s, 400s, and 600s that represent commercial, industrial, extractive industries, or infrastructure and utilities land.

Landowners should refer to their council rate & valuation notice to check what AVPCC code has been allocated to their properties and contact their local council if they don’t think their allocated code is correct.

What properties or transactions are excluded?

The following properties are excluded from the CIPT regime:

  • Those purchased pre 1 July 2024;
  • Residential, primary production, community service or sport, heritage and cultural purposes properties;
  • Those exempt from duty; and
  • Where duty is triggered under corporate consolidation concession, lease duty, economic entitlement or sub-sale provisions.
How will CIPT apply to subdivided properties?

If the land is already in the CIPT regime before the subdivision, sales of the subdivided properties will not be subject to duty. However, CIPT will start 10 years after the original land enters the CIPT regime.

Will CIPT apply to mixed use properties?

For mixed use properties, a sole or primary use test is used to determine if the property is primarily used for commercial or industrial purposes, based on some factors like the land or floor area of each use, the relative intensity, economic and financial significance of each use, and the length of time of each use.

How does CIPT apply for Build-to-Rent (BTR) properties?

CIPT at the rate of 0.5%, instead of 1%, will apply to land that is eligible for the 50% land tax concession under the BTR concession regime.

However, as the bill is currently drafted, it’s unclear how BTR land can be considered as commercial or industrial property for CIPT purposes considering the long-term residential nature of BTR projects. We expect more clarity on this when the law is passed.

What happens if a property is sold after entering into the CIPT regime but before the 1% annual tax arises (i.e. sold within 10 years)?

For properties entering the CIPT regime through 100% interest acquisition post 1 July 2024, the property will no longer be subject to duty when sold. However, for properties entering the CIPT regime through less than 100% interest acquisition, duty may still be payable in relation to purchase of the remaining interest even though the entire property might have already entered in the CIPT regime.

Under the way the Bill is currently drafted, purchase of remaining interests in a landholder (a company or unit trust) will not be subject to duty if the purchase is after 3 years the property enters the CIPT regime. However, purchase of remaining interests in direct property will still be subject to duty no matter if it occurs before or after the 3 year period.

Regardless, the purchaser will start paying the 1% annual tax (CIPT) 10 years after the property entered the CIPT regime, which would be the same time the vendor would have been liable to start paying CIPT.

Is it better to purchase a property before 1 July 2024?

On the balance, our view is that the introduction of CIPT is unlikely to generate a flurry of transactions to occur before 1 July 2024.

This is because based on our modelling, the answer would vary depending on each case. For example, a long term investor (i.e. to hold over well over 10 years) may save CIPT by purchasing a commercial or industrial property before 1 July 2024. However, given CIPT only happens after 10 years a potential buyer would need to present value discount the savings to determine today’s value.

An investor intending to hold less than 10 years may consider that purchasing after 1 July 2024 will make the property more attractive for subsequent buyers (because no stamp duty would arise on the subsequent sale). In addition, purchasing after 1 July provides the option to fund the stamp duty through the “transition loan” arrangement.

From a vendors perspective, given the current prices for certain commercial and industrial properties in Victoria has had recent reclines, a decision for the vendor to decide whether to sell pre 1 July 2024 in our view is likely to be balanced between i) whether a buyer will pay additional proceeds to transact before 1 July 2024 and ii) compared to any potential general market pricing escalations if the property is held longer and sold after 1 July.

Will CIPT be triggered on purchase of shares or units?

Purchase of shares or units in a company or unit trust that owns commercial or industrial land valued at $1M or more will cause the property to enter the CIPT regime if the purchase is to acquire at least 50% interest (by itself or through the aggregation rules) and subject to landholder duty.

As a result, 1% CIPT will be payable on the land starting 10 years after the purchase.
It’s worth noting that purchase of the remaining shares or units in the landholders of the properties entering into CIPT regime through less than 100% landholder interest may still be subject to duty if the purchase occurs within 3 years after the land first entered the CIPT regime even though the entire property the company or unit trust holds has entered the CIPT regime.

In addition, acquisitions of units in a commercial or industrial property landholder between 20% to less than 50% interest post 1 July 2024 may be subject to duty without triggering CIPT.

Will CIPT apply when the land is no longer used for commercial or industrial purposes?

In this case, CIPT will no longer apply to the land and subsequent sale of the property will be subject to duty.

For commercial or industrial properties that were previously purchased as duty exempt under the CIPT regime, change in use duty will apply and calculated based on the stamp duty that would have been payable when the property was acquired, including any relevant concessions, but reduced by 10% for every 31 December that has passed since that transaction, to a maximum of 100 per cent (ie. effectively nil after 10 years of purchase and commercial or industrial use).

How does the loan to fund the final stamp duty work?

Eligible purchasers can apply for the transition loan with the following terms as outlined at the time of writing on the Department of Treasury and Finance Victoria’s website.

  • The loan will be issued by Treasury Corporation of Victoria at a commercial interest rate, which will be published annually;
  • The interest rate will be fixed over the 10-year term of the loan and paid off in annual principal and interest repayments;
  • The first repayment will be due 12 months after settlement;
  • Early repayments will be allowed but break fees will apply;
  • If the property is sold before the end of the 10-year term, the balance of the loan will be paid off from the proceeds of the transaction;
  • The loan cannot be novated or transferred to a subsequent purchaser.

We expect more details about the loan to be announced later this year.

Will CIPT affect foreign buyers?

Foreign buyers will also be liable for CIPT. However, there is no absentee owners surcharge on CIPT, which is different from land tax.

In addition, foreign owners will not be able to get the transition loan from the government to fund their post 1 July 2024 stamp duty on their purchase.

Where can I find more details on the CIPT regime?

For more details, the SRO provides useful Information Sheet and Q&A on their website regarding the regime at Commercial and industrial property tax reform | Department of Treasury and Finance Victoria (

Conclusion for the CIPT regime

The CIPT regime and its transition period where the final stamp duty is payable on the first transaction post 1 July 2024 will potentially affect buyers’ sentiment and create different reaction in the market for properties both in the CIPT regime that are exempt from duty and those still subject to duty.

There are also planning opportunities to consult with your tax & legal advisers if you plan to buy or develop commercial and industrial properties to factor in the introduction of the CIPT regime.

Co-authored by Monika Lam, Manager Tax Consulting Melbourne