Yesterday, Victorian Treasurer Tim Pallas MP handed down the Victorian State Budget. Aimed at “putting people first”, the budget invests heavily in health, education, business support and infrastructure and energy as the State prepares to tackle the effects of the COVID-19 pandemic with major spending, stamp duty reductions and land tax discounts.

Described by some as the most important budget in Victoria’s history, it’s a record $49b effort to spend its way out of the COVID-19 induced recession. The Treasurer projected an operating deficit of $23.3b this year, which is forecast to reduce to $5.9b over the next three years, and net debt to reach $87b this year and grow to $155b by 2024. Revenue has also decreased this year, with state tax revenue falling 11.3%.

Payroll Tax

The budget highlights several new and existing payroll tax relief measures which are designed to support businesses and jobs through the COVID-19 pandemic.

For wages paid in 2020-21 and 2021-22, for businesses with annual Australian Group wages less than $10m, no payroll tax will be payable on an increase in taxable wages compared to the previous year plus a payroll tax credit of 10% will be available by reference to the increase. It is presumed that JobKeeper payments are to be ignored in calculating the “increase” on the basis that they are exempt. That said, there could be distortions in the calculation of the “increase” having regard to the sudden reduction in wages suffered in the first half of the 2020-21 year compared to a gradual ramp-up of wages over the 2020-21 year.

• To be eligible for annual reporting of payroll tax, the threshold will be increased from $40,000 to $100,000 until 1 July 2021.
• The previously announced payroll tax relief for those businesses with an annual Victorian payroll of up to $3m for the 2019-20 year and the exemption of JobKeeper payments from being subject to payroll tax.

Land Tax

• A 50% land tax discount will be introduced for eligible build-to-rent developments, until 1 January 2040, which follows NSW’s lead which was announced in July 2020 (see our article here). This will commence on 1 January 2022 and includes an exemption from the Absentee Owner Surcharge for the same period. While NSW’s initiative was put into near-immediate effect, much of the detail and parameters of the NSW scheme is still unknown, and so it is hoped that all the details of the Victorian changes will be announced well before commencement to provide certainty for developers investing into new projects in Victoria.
• A land tax exemption for land owned and occupied by not-for-profit clubs that provide for the social, cultural, recreational, literary or educational interests of their members (other than horse racing or harness racing) will replace the current concessional rate from 1 January 2021.

Transfer duty

• As announced on 13 September 2020 (see article here), the proposed transfer duty concession of 50% for commercial and industrial property transactions in regional Victoria which was introduced in the 2019-20 budget will be brought forward to apply to contracts for eligible properties entered into on or after 1 January 2021 (rather than the 1 July 2023 date announced in the previous budget).
• In response to the COVID-19 pandemic, and as part of the ‘Big Housing Build’ package, a transfer duty discount will apply to a purchase of new residential property (50% discount) or an existing residential property (25% discount) with a dutiable value of up to $1m. It is proposed that these changes will apply to contracts entered into, on or after 25 November 2020 and before 1 July 2021. The reduction will not to apply to any Foreign Purchaser Additional Duty.
• Other measures announced included deferral of the introduction of the increased landfill levy and a new ‘Distance-based charge for zero and low emission vehicles’ which is intended to balance the need for these vehicles to make a fair contribution to our road network (presumably because these vehicles are not subject to Commonwealth Government fuel excise), while recognising their environmental and health benefits, which follows a similar measure announced in the SA budget.

Other duty changes

The enabling legislation also includes other non-budget changes as follows:

Partnerships

The tracing provisions for partnerships are to be expanded such that they apply to multiple layers of trusts. The Duties Act 2000 (Vic) was amended in 2018 to impose duty on a change in interests in partnerships, with a view to overcoming the decision of Commissioner of State Revenue v Danvest Pty Ltd & Anor [2017] VSCA 382. The new provision seeks to ensure that duty applies where the relevant land is held through a series of partnerships.

Fixed property

The amendment makes it clear that security interests are excluded from being dutiable property, confirming that the provisions operate in the same way as an interest in land. That said, the same security interest exclusion does not appear to apply to economic entitlements and some confirmation of equal treatment in that context would be welcome.

Equity release program

The amendment expands the definition of “permitted provider” to include a person approved by the Commissioner in accordance with guidelines issued by the Treasurer.

First home buyer concession – vacant land

The amendments seek to expand the circumstances where a person can obtain a concession, to include where the transferee intends to build a new home and where some structure has been left on the land due to heritage significance or it is intended to be demolished. In addition, there are changes to the residency rules to account for a transfer of vacant land.

Livestock

New rates of duty will apply to livestock as follows:

• 12 cents per sheep, goat or carcase sold before 1 January 2021.
• 19 cents per sheep, goat or carcase sold on or after 1 January 2021.
• 27 cents per sheep, goat or carcase sold on or after 1 January 2022.
• 35 cents per sheep, goat or carcase sold on or after 1 January 2023.

Corporate reconstruction and corporate consolidation concession

There are a number of amendments to be made to the corporate reconstruction and corporate consolidation provisions. We particularly note:

• Corporate consolidation now includes the continuation of a consolidated group, and not just the formation of a consolidated group, which was sometimes a barrier to obtaining the concession.
• Parties to the transaction must be members of the same corporate group (or substantially the same corporate group) at the time the agreement was entered into. Care will therefore need to be taken regarding the timing of any post acquisition restructure.
• Steps taken within 30 days which include both a corporate reconstruction and a corporate consolidation will only be required to pay the concessionary duty once. Currently, concessionary duty is payable on both a corporate reconstruction and corporate consolidation.
• In the event that a company is interposed above a unit trust scheme, the 20% tracing rule applying to unit trust schemes (rather than 50% for a company) is preserved for 3 years. While this is a clear integrity measure, further inquiries will need to be made to determine whether the acquisition of an interest in the company which is between 20% and 50% is subject to landholder duty. The provision seems to apply to previous and future corporate consolidations.