Picking up the pieces after an uncertain 18 months
After a somewhat surprising Liberal victory at the Federal Election, the state government has released its 2019-20 Victorian State Budget in the shadows of slumping stamp duty revenue and a forecasted reduction in federal financing.
In light of these hits to the state government’s coffers, the 2019-20 Victorian state budget proposes several revenue raising measures, including:
- Raising motor vehicle duty rates on luxury vehicles
- Raising duty rates for foreign landowners and prospective purchasers
- Removing the tax exemption for vacant land adjoining main residences
- Removing the exemption for gold production from royalties
However, the state government has committed to its spending promises and has also introduced a number of measures intended to ease the burden on Victorian businesses, including:
- Reducing the burden of payroll tax by:
- increasing the tax-free threshold
- introducing an exemption for all parental leave, and
- reducing the regional payroll tax rate
- Relaxing the requirements for corporate reconstruction relief from duty
- Introducing a land transfer duty concession in regional Victoria for commercial and industrial properties
Increased motor vehicle duty
From 1 July 2019, the state government will introduce the following changes:
- Motor vehicle duty (currently $8.40 per $200 of market value) for used passenger vehicles valued over the luxury car threshold (“LCT”) ($75,526 for fuel-efficient vehicles and $67,525 for other vehicles – GST inclusive) will be charged at a rate of $10.40 per $200 of market value. This change ensures that motor vehicle duty is charged consistently across new and used motor vehicles and also harmonises Victoria’s approach with other Australian states.
- Two new “super-luxury” thresholds will be introduced where:
- all passenger vehicles valued between $100,000 - $150,000 will be charged motor vehicle duty at a rate of $14.00 per $200 of market value.
- all passenger vehicles valued over $150,000 will be charged motor vehicle duty at a rate of $18.00 per $200 of market value.
In conjunction with these changes, the following concessions and exemptions are also proposed:
- All low-emission passenger vehicles and vehicles owned by primary producers used in the business of primary production above the LCT will apply a concessional duty rate of $8.40 per $200 of market value.
- Licenced motor car traders (“LMCT”) will be able to apply the existing duty exemption to service demonstrator vehicles, i.e. vehicles that are made available to customers of the LMCT without charge while the customer’s motor vehicle is being serviced.
Increased rates for prospective and current foreign landowners
Foreign buyers have been slugged with increases in the rate of both the current absentee landowner surcharge and land transfer duty surcharge applicable on the purchase of residential property to align the Victorian and New South Wales rates. These changes will result in:
- Increase in absentee landowner surcharge – landowners who do not ordinarily reside in Australia are liable for an absentee landowner surcharge in addition to any other land tax payable. This rate will increase from 1.5% to 2% from the 2020 land tax year.
- Increase in land transfer duty surcharge on foreign buyers of residential property – foreign buyers of residential property are subject to a land transfer duty surcharge in addition to any other stamp duty payable. This rate will increase from 7% to 8% on the greater of the purchase price or the market value of the property. This increase will apply to those contracts entered into on or after 1 July 2019 and will be payable at settlement.
Removal of tax exemption for gold production
Consistent with other Australian jurisdictions, the state government will remove the current royalty exemption for gold production. Accordingly, from 1 January 2020, royalties at a rate of 2.75% will be payable on the net market value of gold production (consistent with the general royalty rate for minerals).
Payroll tax relief
The state government proposes to introduce the following payroll tax changes:
- Victorian payroll tax-free threshold – this threshold will increase from $650,000 to $675,000 from 1 July 2021, and a further increase of $25,000 to $700,000 from 1 July 2022. This measure will provide payroll tax relief to all businesses.
- Reduction in the regional payroll tax rate paid by eligible businesses – the regional payroll tax rate of 2.425% will reduce by approximately 0.4% each year from 2020-21 until it reaches 1.2125% in 2022-23. At this point, the regional payroll tax rate will be equal to 25% of the current metropolitan rate of 4.85%. Further, from 1 July 2019 the eligibility rules for the regional payroll tax rate will be simplified by removing the current requirement that an employer must have their registered business address in regional Victoria.
- Payroll tax exemption to be extended to all types of parental leave – from 1 July 2019 the payroll tax exemption that currently applies for wages paid to employees on maternity leave will be extended to apply for up to 14 weeks of wages paid to employees taking parental leave.
Increased access to corporate reconstruction relief
The state government will expand the qualifying provisions for relief from duty on corporate reconstructions with the aim of promoting business efficiency. Whilst this will be a welcome relief for businesses looking to restructure their Victorian operations, it is noted that the budget papers are light on actual detail for this proposed measure.
In addition, the current exemption that applies to qualifying corporate reconstruction transactions will be replaced with a concessional duty rate equal to 10% of the ordinary duty that would otherwise be payable from 1 July 2019.
Regional land transfer duty concessions
The state government proposes to introduce a new land transfer duty concession to commercial and industrial property transactions in regional Victoria. Initially, a 10% concession will be provided to all contracts signed from 1 July 2019, increasing by a further 10% each year to a full 50% discount from 1 July 2023 to encourage businesses to locate in regional areas.
Removal of land tax exemption for contiguous land in metropolitan Melbourne
In an effort to discourage land banking and promote the efficient use of land in metropolitan areas, the state government proposes to remove the current land tax exemption for all land in Metropolitan Melbourne that is contiguous with a principle place of residence but on a separate title and without a separate residence from the 2020 land tax year.
FOR MORE INFORMATION ON THE
2019-20 VICTORIAN STATE BUDGET TAX ANALYSIS
If you have any questions about the topics raised in this 2019-20 Victorian state budget tax analysis, get in touch with our tax advisers in Victoria.