Mixed use properties

Some properties may have a mixture of uses across different occupancies, for example a street level shop with a residence above. In this example, the property may have more than one property classification code, and they may have a mixture of qualifying (ie. commercial) and non-qualifying (ie. residential) uses.

For such properties, the sole or primary use test will be used to determine if the CIP Tax will apply. 

The sole or primary use test can be in reference to factors such as the land or floor area of each use; the relative economic and financial significance of each use, and the length of time of each use, with “primary” use ultimately determined by the Commissioner of State Revenue.

If the sole or primary use test indicates that a property with several occupancies is qualifying (ie. commercial), the CIP Tax will apply to the entire mixed-use property.

If the primary use of the property is determined to be non-qualifying (ie. residential), then the CIP Tax will not apply to the property.

Change in use of property

A property with a commercial or industrial use may change to a different use over time, for example an industrial warehouse could be re-developed into residential apartments.

From 1 July 2024, a property owner who purchases a qualifying commercial or industrial property pays stamp duty  and the property enters CIP Tax regime. If the property is converted to a non-qualifying use (ie. residential) and continues to be used for that use as at the liability date for CIP Tax for a given tax year, the owner will not be liable for the CIP Tax for that tax year.

If the owner sells the property whilst it has a non-qualifying use (ie. residential), stamp duty will be payable.

If a property that has CIP Tax regime is sold a second or subsequent time with a qualifying commercial or industrial use, stamp duty would not be payable on the transaction. However, if this property is subsequently converted to a non-qualifying use (e.g. residential) then change-of-use duty would apply.

Change-of-use duty is intended to apply where no stamp duty was paid on a recent property transaction, but the property is also no longer liable for the CIP Tax.

The change-of-use duty will be calculated based on the stamp duty that would have been payable when the property was transacted, including any relevant concessions, but reduced by 10% for every 31 December that has passed since that transaction, to a maximum of 100%.

For example, if change-of-use duty was payable seven years after the property was transacted, then the change-of-use duty payable would be equal to 30% of the duty that would have been payable at the time the property was transacted.

Property owners need to notify the Victorian State Revenue Office (SRO) within 30 days of any change of use of a property.

Importance of maintaining records

This new regime underlines how important it will be for taxpayers to maintain detailed records of all land dealings in Victoria including the type of use, timing of any disposals and acquisitions, and any different titles for subdivisions and land consolidations.

Comprehensive documentation will be very beneficial to respond to any enquiries by the Victorian SRO and to support any future due diligence enquiries.