In the 2023 Victorian state budget, significant changes are on the horizon concerning land tax, payroll tax, and stamp duty, all under the umbrella of the government's "COVID debt levy," which will be in effect until June 30, 2033.


These alterations aim to recoup the $31.5 billion debt accrued by the state between 2019-20 and 2022-23. The measures associated with this debt levy are set to generate $8.6 billion over the next four years, with an additional $4.74 billion anticipated in the 2024 fiscal year. Among these changes, the adjustments to land tax will affect around 360,000 additional landowners.


The impact of these changes will be substantial for both individuals and businesses in Victoria. Business owners are advised to seek guidance on managing the repercussions and minimizing tax-related risks, especially when considering investments, developments, or divestments.


Here are the key changes outlined:


**Land Tax - Temporary Surcharge and Reduced Threshold:**

Starting January 1, 2024, the tax-free threshold for general land tax rates will decrease from $300,000 to $50,000.


A "COVID-19 debt temporary surcharge" will be added to existing land tax:

- A $500 flat fee will apply to taxable landholdings between $50,000 and $100,000.

- A fixed fee of $975 will apply to taxable landholdings between $100,000 and $300,000.

- For taxable landholdings exceeding $300,000, a $975 fixed surcharge will be applied, along with an increased land tax rate of 0.10% of the landholdings' value.

- For trusts with a value over $250,000, a flat $975 fee will apply, along with an increased land tax rate of 0.10% of the landholdings' value.


These changes are projected to generate $4.74 billion over four years to repay the COVID debt and will impact 860,000 taxpayers. The lower land tax threshold is expected to encompass an additional 360,000 new taxpayers who were not previously subject to land tax. Smaller landholders will be most affected by the threshold reduction.


Existing land tax exemptions, such as principal residences, farmland, retirement homes, and land owned by charities or religious institutions, will remain in place. For instance, under the new changes, the land tax payment for a property owner with an unimproved land value of $1 million will increase from $2,975 to $4,650. For a $10 million property, the fee will rise from $206,475 to $217,150.


**Absentee Surcharge:**

The absentee surcharge is an additional fee imposed on the land tax you pay as a property owner. Trust surcharge rates apply if you are an absentee owner, corporation, or trust.


Starting January 1, 2024, the Absentee Owner Surcharge rate will increase from 2% to 4%. The minimum threshold will decrease from $300,000 to $50,000, though the minimum threshold will remain unchanged for trusts.


**Builder Insolvencies Extension:**

From January 1, 2024, if you are impacted by builder insolvencies, the Commissioner of State Revenue can extend the land tax exemption for an additional two years for your primary residence under construction or renovation.


**Payroll Tax - Temporary Surcharge and Increased Threshold:**

Additional payroll surcharges proposed in the budget are expected to generate $3.9 billion to repay the COVID debt over four years.


The changes include:

- Beginning July 1, 2023, a temporary payroll tax surcharge will be applied to wages paid by businesses with national payrolls exceeding $10 million annually.

- The surcharge rate of 0.5% will apply to businesses with national payrolls above $10 million, and those with national payrolls exceeding $100 million will incur an additional 0.5% surcharge.

- Starting July 1, 2024, the payroll tax-free threshold will rise from $700,000 to $900,000, with further increases to $1 million from July 1, 2025. Businesses with taxable wages below $10 million annually will not be subject to the levy.


However, for businesses with wages surpassing $5 million, there will be no tax-free threshold.


**Independent and Private Schools:**

Additionally, the budget eliminates payroll tax exemptions for high-fee non-government schools from July 1, 2024. Approximately 110 schools (15% of schools) will lose their exemption.


This change may have a notable impact on non-government schools, potentially leading to fee increases. Affected independent schools may want to review their arrangements, especially concerning contractors, and seek advice promptly.


**Stamp Duty or Property Tax:**

From July 1, 2024, stamp duty on commercial and industrial properties will be abolished and replaced by an annual property tax. The stamp duty liability will persist, but purchasers will have two payment options:


1. Pay the property's final duty liability upfront as a lump sum.

2. Opt for annualized fixed duty payments/instalments over ten years (plus interest), funded by a government-facilitated transition loan. The property tax will be 1% of the property's unimproved value.


These changes will partially offset the increased land tax for some property owners. However, they do not apply to current owners of commercial or industrial properties acquired before July 1, 2024. Residential properties are explicitly excluded from this transformation.


**Airbnb Tax:**

There are reports suggesting that the state government may consider imposing a new tax or levy on landlords who offer their properties through short-term rental platforms like Airbnb. Given the recent crackdown by the Australian Taxation Office on taxpayer claims for expenses and deductions, the prospect of an "Airbnb tax" should be taken seriously by those involved in short-term rentals.