By Andrew Spalding, Partner and Marina Raulings, Partner 

The recent 2021 State Budget Announcements in New South Wales and Victoria have each included State Tax relief proposals and measures aimed to provide financial assistance to taxpayers and in turn stimulate local economic activity affected by COVID related impacts.  We highlight the key changes below.

NSW

• Payroll Tax: A temporary reduction in the payroll tax rate from 5.45 per cent to 4.85 per cent for the 2020/21 and 2021/22 financial years.  The payroll tax threshold will also permanently increase from $1 million to $1.2 million for 2020/21 and subsequent financial years. These changes will apply from 1 July 2020.
• Land Tax: The land tax COVID-19 relief will be extended to 28 March 2021 for retail landowners. To be eligible for relief from 1 January 2021 to 28 March 2021:
  • the lease must be a retail lease;
  • the annual turnover of the tenant must be less than $5 million;
  • the tenant needs to re-establish eligibility by demonstrating a 30 per cent decline in turnover (15 per cent for non-profits) for the December quarter 2020.
• Proposed property tax reform: The NSW Government has started a public consultation process on proposed changes to the state’s property tax system. The proposed reforms consider giving home and property buyers the choice to pay stamp duty and land tax (where applicable) or, alternatively, a new annual property tax, to commence in the second half of 2021.  More specifically, the proposed key features are as follows:
  • The property tax will be a fixed amount plus a rate applied to the unimproved site vale of the individual property, and therefore would increase annually as land values increase. However, unlike land tax, the rate will apply on a property by property basis, and not on the entire aggregated landholdings portfolio of the taxpayer. The indicative rates published in the consultation paper are below (but may change after the consultation process):
    
  • All future property buyers and some buyers retrospectively would be given the choice to opt-in to the property tax instead of paying stamp duty on purchase and any applicable land tax (where the property is a residential investment or commercial property). Once a choice is made, all future owners of that property would be subject to the property tax.  It is expected that property owners with high property purchase turnover would opt-in, and long-term holders of property would continue to pay stamp duty and land tax.  However, over the long term it is forecast that over 50% of properties would be in the property tax system.
  • From day one, 80 percent of residential properties will be eligible to opt-in. Other properties will be subject to price thresholds, with only properties with a market value beneath the threshold to be eligible for opt-in to the property tax, initially limiting the properties eligible for transition to keep revenue and debt impacts manageable.
  • The property tax rates will vary depending on the type of property, with the lowest rates for residential owner occupiers and primary production properties, followed by residential investment properties, with commercial properties having the highest rates of property tax.
  • In the long term, the property tax is expected to achieve revenue neutrality, collecting the same amount of revenue as stamp duty and land tax.

Victoria

• Payroll tax: Businesses with annual Australian group wages up to $10 million will receive a non-refundable credit of 10 cents for every dollar of Victorian wages paid above the previous year’s wages in 2021 and 2022.  From 1 July 2021, the threshold for making annual payroll tax payments will be increased from $40,000 to $100,000.
• Land transfer duty: The 50% land transfer (stamp) duty concession for commercial and industrial properties in regional Victoria will be brought forward and apply to contracts entered into on or after 1 January 2020.  Residential property transactions with a dutiable value up to $1 million entered into from 25 November 2020 to 30 June 2021 will receive a stamp duty waiver of:
  • 50% for new residential properties;
  • 25% for existing residential properties.
• Land tax: From 1 January 2021, land owned and used by non-profit clubs to provide for the social, cultural, recreational, literary or educational interests of their members will be exempt from land tax. The exemption replaces the concessional rates currently applying to these clubs.  From 1 January 2022, eligible new build-to-rent developments will receive a 50% land tax discount and be exempt from Absentee Owner Surcharge until 2040.

If you require any assistance with these measures or would like us to make submissions to the NSW Government on your behalf on the proposed new NSW property tax system, please do not hesitate to contact us.