Victorian State Budget 2023: key takeaways for Individuals and SMEs

This week our State Treasurer, Tim Pallas handed down the Victorian State Budget 2023-24, and it seems that landowners and mid-market businesses will be those impacted the most as the government tries to recover from the pandemic.

The proposed State Budget list several tax changes for Victorians, the most significant updates include changes to:

• Stamp duty on Commercial and Industrial properties
• Payroll tax
• Land tax
• Work cover premiums

The article below outlines these changes and their impact on individuals and SMEs across Victoria.

Stamp Duty on Commercial and Industrial properties

From 1 July 2024, commercial and industrial property owners will gradually transition to a new tax regime. As these properties are sold, commercial and industrial property investors will be able to choose between two payment options for their final stamp duty liability.

•  They will either pay stamp duty upfront as a lump sum or pay in fixed instalments over ten years, with an additional interest charge, and
• Once a property enters the new system and reaches the ten-year mark, no additional duty will be applicable when the property is sold. Instead, an annual property tax of 1% will be the sole tax obligation moving forward.

While the specific details are yet to be finalised, these tax reforms aim to encourage investment by freeing up much-needed capital for business expansion. This change delivers a small win for business owners and commercial property investors looking to invest further and expand over the next few years.

Changes to Payroll Tax

The following payroll tax changes have also been announced to further support the debt recovery post the pandemic.

• From 1 July 2023, payroll levy will apply to Victorian businesses with annual Australia-wide taxable wages above $10m. A surcharge of 0.5% on their Victorian wages, to the extent they exceed the relevant threshold.
• From 1 July 2024, the payroll tax-free threshold will increase from $700 000 to $900 000, and then subsequently increasing to $1m from 1 July 2025. This change will provide relief to smaller businesses with relatively small payrolls.

The Victorian Government estimates that by increasing this threshold, approximately 6,000 businesses will no longer be subject to payroll tax. These changes will likely place additional pressure on the top end of town and some welcome relief for smaller businesses.

Changes to Land Tax

Unfortunately, for over 38,000 landowners, the State budget delivers the following tax increases:

• The tax-free threshold for general land tax rates will be cut from $300,000 to $50,000 (therefore subjecting more properties and property owners to land tax)
• A temporary fixed charge levy of $500 will be placed on general taxpayers with total landholdings between $50,000 and $100,000
• A temporary fixed charge levy of $975 will be placed on general taxpayers with total landholdings between $100,000 and $300,000
• For general (non-trust) taxpayers with total landholdings above $300,000 and trust taxpayers with total landholdings above $250,000, a land tax levy of $975 will apply, plus an additional 0.1% of the taxable value of their landholdings

These changes are set to commence 1 January 2024 and will apply until 30 June 2033.

It’s important to note that these taxes and levies do not apply to principal places of residence, primary production land, and land used by charities. These land tax exemptions should continue to apply provided the property and owner satisfy the relevant eligibility requirements.

Work Cover changes

Although not announced in the State Budget, the Victorian Government also confirmed last week that they would increase the work cover premiums by an average of 42%, placing additional pressure on Victorian businesses.
The recent announcements have stated that they will increase the average WorkCover premium rate from 1.27% to 1.8% of remuneration, while the premiums in Queensland are 1.23% and New South Wales are paying 1.48%.

Any Questions? Contact your advisor

Our Morrows One Team takes a multidisciplinary approach to business and wealth, helping our clients align their strategic and personal goals. Please reach out to your advisor to discuss how this State Budget will likely impact you or your business.