Commercial and Industrial Property Tax – Introduction
On 21 May 2024, in Australia, the Commercial and Industrial Property Tax Reform Act 2024 received Royal Assent, officially enacting the Commercial and Industrial Property Tax (CIPT).
The new CIPT regime will apply to eligible transactions from 1 July 2024.
Key Features
Entering the CIPT regime
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 within the regime
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).
Additionally, land used solely or primarily for eligible student accommodation will also qualify for the regime.
Exemptions
The CIPT will not apply to properties coded for residential, primary production, community services, or sport, heritage, and cultural purposes.
Threshold
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.
Effect of entering the CIPT regime
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, provided 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).
Commencement
Properties sold under contracts entered into before 1 July 2024, will not enter the regime, even if the settlement occurs after that date.
Implications
Purchasers seeking to invest in commercial or industrial land on a long-term basis should seek urgent advice on whether they should enter into a contract of sale before 1 July 2024.
This is because the first purchaser of land that causes it to enter the CIPT regime will be liable for both stamp duty and the CIPT after a period of 10 years.
Comment
The above information provides a snapshot of the new CIPT regime, highlighting several issues that purchasers must urgently consider. Further detail regarding the new regime is available from official sources.
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.
Final thoughts
If you have any queries about this article on the Commercial and Industrial Property Tax, or Australian tax matters more generally, then please get in touch.