Victoria’s property landscape is undergoing a seismic shift with the introduction of Commercial and Industrial Property Tax (CIPT). If you own or are thinking of buying commercial property, it’s essential to understand how this reform works, what it means for your cash flow, and how it compares to the traditional stamp duty model. Below, I’ll break down the essentials, including examples to help make sense of it.
What Is CIPT?
CIPT is Victoria’s new annual tax that replaces up-front stamp duty on commercial and industrial property transactions. Under this system:
- Buyers pay stamp duty one last time on their next eligible purchase.
- After 10 years, the property moves into the CIPT regime.
- A fixed annual tax of 1% of the property’s unimproved land value applies.
The stated goal is to reduce the high upfront cost of stamp duty and improve liquidity and flexibility in the commercial property market.
When Does It Start?
CIPT applies to commercial and industrial property transactions from 1 July 2024. If you buy before this date, the property stays under the old stamp duty system.
Example Scenario: Let’s say you purchase a property:
- Contract date: 27 May 2025
- Purchase price: $3,500,000
- Unimproved land value: $1,750,000
Step 1: Stamp Duty
First, you pay traditional stamp duty (approx. $198,870).
Step 2: The 10-Year Transition
You don’t pay CIPT immediately. Instead, there’s a 10-year transition period after settlement.
Step 3: CIPT Activation
From year 11 onward, you pay annual CIPT:
- 1% x $1,750,000 = $17,500 per year
- Plus the usual land tax (if applicable).
Step 4: Ongoing Land Tax
In addition to CIPT, land tax still applies. For example:
- Under the 2024 rates, the land tax on $1,750,000 (for a non-exempt entity) would be approx. $9,975 per year.
- So, from year 11, you’d pay ~$27,475 annually in combined CIPT and land tax.
What If the Property Sells Again?
If your property sells before the 10-year transition ends, the new purchaser can either:
-Pay the standard stamp duty, and the 10-year countdown resets.
or
-Elect to immediately enter CIPT, skipping the remainder of the transition.
Can You Recover CIPT From Tenants?
This depends on your lease:
- Retail Leases Act tenants: You cannot recover land tax from tenants, so CIPT is likely not recoverable either (as it is considered a tax in the nature of land tax).
- Non-Retail Leases: You can recover land tax and may be able to recover CIPT, provided your lease explicitly allows recovery of statutory charges or taxes imposed on ownership.
It’s crucial to review your lease terms carefully and get legal advice.
Should Investors Be Concerned?
CIPT is a significant change to how property holding costs are structured. While it may lower the barrier to entry by removing large stamp duty bills upfront, it does introduce a predictable ongoing liability that needs to be factored into your yield calculations and lease negotiations.
Final Thoughts
Navigating Victoria’s commercial property tax reforms requires careful planning. If you’re looking at buying or holding commercial property in the next few years, take the time to:
- Model the costs over a 10- to 20-year horizon.
- Review your leases for recovery rights.
- Talk to your advisors early—especially if you are acquiring through an SMSF or trust.
If you’d like help understanding how CIPT could impact your investment or would like tailored modelling examples, feel free to get in touch—I’m always here to help you stay one step ahead.
All examples provided are general in nature and for illustrative purposes only—seek independent tax and legal advice before making decisions.