While the Budget included a number of revenue changes, the Victorian Government seems to have taken the opportunity to make additional duties changes which are set out in the State Taxation Acts Amendment Bill 2019 (Vic) (“Bill”) tabled in Parliament today. More on those changes below, including some early insights and observations.
State of the Victorian economy
- In 2017-18, Victoria’s economy grew by 3.5%, exceeding Australia’s national economic growth of 2.8%.
- In 2019-20, the Government’s infrastructure investment will reach $14.2 billion, averaging $13.4 billion a year over the Budget and forward estimates period.
- With a focus on building local and hiring local, the Government claims that its infrastructure agenda has ensured more than 115,000 jobs for Victorians.
- Despite the revenue write-downs, the Budget produces an operating surplus of $1 billion, with surpluses averaging $3.4 billion a year over the forward estimates period.
- Net debt to gross state product will be stabilised at 12% over the medium term.
- The AAA credit rating from both Standard & Poor’s and Moody’s will be retained.
Road, Rail and Infrastructure
- The Suburban Transport Blitz will fund $27.4 billion towards suburban infrastructure. This includes funding for the North East Link, removing dangerous and congested level crossings across Victoria and upgrades to the public transport network.
- The Budget dedicates $2.6 billion to focus on the needs of Victoria’s regional communities, and with a view to adding approximately 4,500 jobs throughout the state.
- The Government will be investing $1.3 billion over the next 10 years to expand Solar Homes, on top of the $74 million already provided. This includes offering rebates for the cost of solar panels, solar hot water systems or battery storage for 770,000 homes around Victoria over the next decade. The program has been expanded to renters, and funding will be provided for training, safety and quality audits to ensure the safety and sustainability of the rollout.
Payroll Tax Changes
- Payroll tax-free threshold to be increased from $650,000 to $700,000 by 2022-23 (through incremental increases of $25,000 in 2021-22 and 2022-2023). The Government estimates that this will reduce the number of businesses paying payroll tax from the current 38,000 by around 700 in 2021-22 and a further 700 in 2022-23.
- The regional payroll tax rate will also be cut from 50% to 25% of the metropolitan rate by 2022-23 alongside with expanded eligibility for concession.
- The regional payroll tax rate paid by eligible businesses will be reduced to 1.2125%, or 25% of the metropolitan rate, by 2022-23.
- From 1 July 2019, the eligibility rules for the regional rate will be simplified by removing the ‘business location test’, which required an employer to have their registered business address in regional Victoria.
- From 1 July 2019, the payroll tax exemption for wages paid to employees on maternity leave will be extended to all types of parental leave. The exemption will apply for up to 14 weeks of wages paid to employees taking parental leave.
- We anticipate that many mid-sized businesses will be beneficiaries of these changes.
- $5.2b in stamp duty revenue has been written off since last year’s Budget.
- From 1 July 2019, corporate reconstruction exemptions will be replaced with a 90% concession on the duty otherwise payable (there is currently a 100% exemption available which is consistent with every other jurisdiction).
- Corporate reconstructions assist many organisations to structure their business affairs in the most effective and efficient manner, which ultimately drives revenue and profit.
- A duty impost can often prevent organisations from achieving these worthwhile objectives.
- The Bill runs counter to a number of these efficiencies by requiring payment of 10% of the duty otherwise payable. That may not sound a lot, but when coupled with valuation costs (which we expect will be required to calculate the minimal amount of duty), we foresee that groups might simply choose not to restructure, and therefore maintain less than optimum structures.
- In contrast, the post association period of 3 years will be removed and for multi-step restructures (common for global corporate groups), duty will only be payable once if the steps are completed within 30 days. Interestingly, this measure seems to take the opposite approach to Western Australia, which is in the midst of re-introducing a 3 year post association period.
- Additional duty for foreign purchasers will increase from 7% to 8% on contracts entered into on or after 1 July 2019, which aligns with New South Wales (which is incidentally the only jurisdiction with that high rate). As such it appears our comments on the Tasmanian Budget to bring their rate to 7% (to align with other jurisdictions) will now soon have Victoria as an exception to the 7% rate as well.
- A duty concession on a transfer of regional commercial and industrial land is to be introduced, being an initial discount of 10% from 1 July 2019, rising by an additional 10% discount from each following 1 July, to a 50% concession from 1 July 2023.
- The concession does not appear to be replicated under landholder duty, and so care might need to be taken as to how the land is acquired to access the concession.
- A condition for the reduction is that the land is used for a qualifying use for a continuous 12 month period in the first 2 years unless extended by the Commissioner.
- Motor vehicle duty is currently charged at 5.2% for new luxury passenger vehicles (above the luxury car tax threshold, which is currently $66,331) and 4.2% for other passenger vehicles. The rates are proposed to change from 1 July 2019 as follows (also bringing used cars into the luxury car net):
- Cars valued between the luxury car tax threshold and $100,000 will be 5.2%.
- Cars valued between $100,000 and $150,000 will be 7%.
- Cars valued more than $150,000 will be 9%.
- All “green” cars (with carbon dioxide emissions less than 120g/km) and cars used by farmers in the business of primary production will be charged a rate of 4.2%.
- A new exemption is also to be introduced licensed traders for motor vehicles used by customers while their car is being serviced, which brings it into line with new and demonstrator vehicles.
- The Bill also seeks to bring a transfer of tenant’s fixtures (which now includes things merely “fixed to land”) to duty if the unencumbered value of the “fixtures” exceeds $2m, with a phasing in of duty up to $3m.
- Currently, a transfer of a business coupled with a lease which does not fall within the ambit of the Victorian lease provisions (such as a common retail or commercial lease) is not subject to duty at all in Victoria.
- This change could bring ordinary commercial business sales to duty in Victoria for the first time. If this is the case, many more businesses could be caught under the Victorian landholder provisions, which currently provide for wide concessions and exemptions for business which hold ordinary commercial leases.
- Some early guidance from the State Revenue Office would be welcome in this regard.
- The concept of an “economic entitlement”, a concept unique to Victoria, is to be moved from landholder duty to transfer duty, with an “economic entitlement” taken to be a land holding for the purposes of landholder duty.
- However, there are some differences.
- While we are working through what these differences might mean in practice, property developments and associated financing should be reviewed carefully in the light of this change.
Changes to Land Tax
- From 1 January 2020, the absentee owner surcharge for foreign investors will be increased from 1.5% to 2%.
- While the Government suggests that simply aligns with New South Wales, New South Wales only imposes a surcharge on residential land, and not all taxable land like Victoria (which is the only jurisdiction to do so).
- A land tax exemption for vacant land that is adjacent to a principal place of residence in metropolitan Melbourne will be abolished from 1 January 2020.
- For land that is genuinely part of an owner’s main residence, the Government suggests that titles can be consolidated so as not to be affected by the new changes.
- However, that does require action from the land owner, together with incurring the transaction costs to manage the relevant land applications and adviser costs.
- The Government will broaden the royalties regime and will introduce a 2.75% gold royalty on the net market value of gold production from 1 January 2020, which is expected to generate $56 million. Small miners will be exempt from this royalty.