Thursday, 21 March 2024

Bills

Commercial and Industrial Property Tax Reform Bill 2024

Statement of compatibility

Tim PALLAS (Werribee – Treasurer, Minister for Industrial Relations, Minister for Economic Growth) (10:14): In accordance with the Charter of Human Rights and Responsibilities Act 2006, I table a statement of compatibility in relation to the Commercial and Industrial Property Tax Reform Bill 2024:

In accordance with section 28 of the Charter of Human Rights and Responsibilities Act 2006 (Charter), I make this Statement of Compatibility with respect to the Commercial and Industrial Property Tax Reform Bill 2024.

In my opinion, the Commercial and Industrial Property Tax Reform Bill 2024 (Bill), as introduced to the Legislative Assembly, is compatible with the human rights as set out in the Charter. I base my opinion on the reasons outlined in this Statement.

Overview

This Bill reforms the taxation of commercial and industrial property by introducing the commercial and industrial property tax (CIPT). In doing so, the Bill also make consequential amendments to the Duties Act ‍2000 (Duties Act), the Taxation Administration Act 1997 (TA Act), the Treasury Corporation of Victoria Act 1992 (TCV Act), the Heritage Act 2017, the Property Law Act 1958 (Property Law Act), Retail Leases Act 2003 (Retail Leases Act), the Sale of Land Act 1962 (Sale of Land Act) and the Valuation of Land Act 1960 (Valuation of Land Act).

Many provisions of the Bill do not engage the human rights listed in the Charter because they either do not affect natural persons, or they operate beneficially in relation to natural persons.

Human rights issues

The rights under the Charter that are relevant to the Bill are the right to property, the right to privacy, the right to freedom of movement, the right to a fair hearing, the presumption of innocence and the right against self-incrimination.

Right to property: section 20

Section 20 of the Charter provides that a person must not be deprived of his or her property other than in accordance with law. This right is not limited where there is a law that authorises a deprivation of property, and that law is adequately accessible, clear and certain, and sufficiently precise to enable a person to regulate their conduct.

Imposition of CIPT

Parts 2 and 3 of the Bill prescribe the regime by which the CIPT reform scheme operates. Clauses in these Parts engage the right to property to the extent that a natural person taxpayer may be liable to CIPT.

The imposition of CIPT is not arbitrary because it is precisely formulated in Parts 2 and 3 of the Bill. These clauses are adequately accessible, clear and certain, and sufficiently precise to enable affected natural person taxpayers to inform themselves of their legal obligations and to regulate their conduct accordingly. Furthermore, taxpayers will have the protections provided by the TA Act including rights of objection, review, appeal and refund of overpaid tax.

Change of use duty: Duties Act

Clause 37 inserts section 69AR into the Duties Act which imposes duty in respect of certain dutiable transactions over property which has entered the CIPT reform but subsequently undergoes a change of use.

Clause 41 inserts section 89FB into the Duties Act which imposes landholder duty in respect of certain relevant acquisitions where property in which the landholder has an interest has entered the CIPT reform but subsequently undergoes a change of use.

The right to property may be engaged by these amendments as natural person taxpayers may become liable to duty.

To the extent that a natural person’s property rights are affected by the above amendments to the Duties Act, any limitation is in accordance with the law, which is clearly articulated, not arbitrary, and sufficiently precise to enable affected natural person taxpayers to inform themselves of their legal obligations and to regulate their conduct accordingly. Any deprivation of property arising from the payment of duty under the change of use provisions is further justifiable since these provisions are anti-avoidance in nature.

Transition loan program: TCV Act

Clause 57 of the Bill inserts provisions relating to the transition loan program into the TCV Act. Under this new Part 3C of the TCV Act, natural persons may apply for and enter into a transition loan with the Treasury Corporation of Victoria (TCV), and such loan is to be used for the payment of duty under the Duties Act on transactions that result in land entering the CIPT reform. A natural person who is a borrower under a transition loan would be required to repay amounts to TCV under that transition loan. Further, under the proposed section 36S(1) of the TCV Act, TCV will have a first statutory charge on the borrower’s interest in the land to secure any amounts owing under the transition loan. Under the proposed section 36U of the TCV Act, in the event of non-payment by a borrower, TCV may enforce a statutory charge and the enforcement of that statutory charge may result in the sale of the property by TCV.

The right to property may be engaged by these amendments as natural persons may become liable to repay amounts to TCV under a transition loan agreement. Further, natural persons may be deprived of their property if they do not repay the transition loan when it is due, as the property may be sold as part of the enforcement process.

Transition loan repayments and the enforcement of the statutory charge are not arbitrary because natural persons will enter into the loan agreements voluntarily and repayment terms and enforcement terms will be agreed between the relevant natural person(s) and TCV in the applicable transition loan agreement and by virtue of the proposed amendments to the TCV Act under the Bill. Natural person borrowers under the transition loan scheme will have the requisite information to inform themselves of their legal obligations and to regulate their conduct accordingly.

Investigative powers of tax officers

The TA Act will apply to the Bill. Part 9 of the TA Act provides authorised officers with investigation powers to administer and enforce taxation laws. Section 20 of the Charter is relevant to a number of powers which provide for authorised officers to enter certain premises, and to seize or take items. These powers are discussed in detail below in relation to the right to privacy.

The powers of an authorised officer include, under section 76 of the TA Act, the power to seize a document or thing where the officer has reason to believe or suspect it is necessary to do so to prevent its concealment, loss, destruction or alteration. Similarly, section 81 of the TA Act provides that an authorised officer may seize a storage device and the equipment necessary to access information on the device if the authorised officer believes, on reasonable grounds, that the storage device contains information relevant to the administration of a taxation law and it is not otherwise practicable to access the information on the device.

Sections 76 and 81 of the TA Act, as they will apply to the Bill, do not limit the right in section 20 of the Charter because they are sufficiently confined and structured, accessible, and formulated precisely such that any deprivation occurs in accordance with the law. Further, these provisions guard against any permanent interference with property where no offence has been committed. For example, the TA Act provides that reasonable steps must be taken to return a document or thing that is seized if the reason for its seizure no longer exists (section 84), and the document or thing seized must be returned within the retention period of 60 days, unless the retention period is extended by an order of the Magistrates Court (section 85).

Right to privacy: section 13

Section 13(a) of the Charter provides that every person has the right to enjoy their private life, free from interference. This right applies to the collection of personal information by public authorities. An unlawful or arbitrary interference to an individual’s privacy will limit this right.

Notification requirements

Clause 33 of the Bill requires persons served with a notice of assessment of CIPT to notify the Commissioner of State Revenue (Commissioner) of certain errors or omissions in the notice within 60 days after the date of issue of the notice of assessment. Clause 34 of the Bill requires owners of tax reform scheme land to notify the Commissioner within 30 days if the land or any part of it undergoes a change of use.

However, to the extent that the collection of this personal information may result in interference with a natural person’s privacy, any such interference will be lawful and not arbitrary as these provisions do not require that a person’s personal information be published, and only require the provision of information necessary to achieve the purpose of accurate and correct CIPT taxation.

Permitted disclosures under the TCV Act

Clause 57 of the Bill inserts new section 36W into the TCV Act, allowing TCV to disclose to any person information about whether any land is subject to a statutory charge under the new section 36S(1) of the TCV Act or any information obtained by TCV under or in connection with the transition loan program.

To the extent that TCV’s discretionary power to disclose transition loan program or statutory charge information relates to natural persons and engages the right to privacy, I consider that engagement to be neither arbitrary nor unlawful. TCV’s power to disclose information obtained under or in connection with the transition loan program does not extend to information obtained by TCV from a tax officer under section 92 of the TA Act. These amendments ensure that TCV can administer the transition loan program in accordance with legislation.

Investigative powers of tax officers and secrecy provisions under the TA Act

The inclusion of the Bill as a taxation law under the TA Act ensures that the investigative powers of the Commissioner and authorised tax officers apply to the administration of the Bill. The following investigation powers may engage the right to privacy, as well as the right not to impart information, which forms part of the right to freedom of expression under section 15 of the Charter:

• Section 73 of the TA Act provides that the Commissioner may, by written notice, require a person to provide the Commissioner with information, produce a document or thing in the person’s possession, or to attend and give evidence under oath.

• Section 76 of the TA Act which provides for entering and searching premises, as outlined above.

• Section 77 of the TA Act provides that an authorised officer may apply to a magistrate for a search warrant in relation to a premises, including a residence, if the authorised officer considers on reasonable grounds that there is, or may be within the next 72 hours, on the premises a particular thing that may be relevant to the administration or execution of a taxation law.

• Section 81 of the TA Act which provides for obtaining information from a storage device, as outlined above.

• Section 86 of the TA Act provides that an authorised officer may, to the extent it is reasonably necessary to do so for the administration or execution of a taxation law, require a person to give information, produce or provide documents and things, and give reasonable assistance, to the authorised officer.

In each provision that permits investigators to exercise powers of entry and search, the powers of investigators and other authorised persons are clearly set out in the TA Act and are strictly confined by reference to their purpose. They are also subject to appropriate legislative safeguards.

Section 92 of the TA Act permits a tax officer to make certain disclosures of information obtained in the administration of a taxation law. Specifically, section 92(1) permits the disclosure of such information for several different purposes, including in accordance with a requirement imposed under an Act, in connection with the administration or execution of a taxation law, to an authorised recipient such as the Ombudsman or a police officer of or above the rank of Inspector, or in connection with the administration of a legal proceeding arising out of a recognised law.

The types of information that may be disclosed include, but are not limited to, information regarding land ownership, tax liabilities and payments by taxpayers, taxation defaults by taxpayers, and applications for objection, appeal and review under Part 10 of the TA Act by taxpayers.

Permitted disclosures are strictly confined to their legitimate purposes and are subject to considerable legislative safeguards. In particular, section 94 of the TA Act prohibits ‘secondary disclosure’, that is, on-disclosure of any information provided by a tax officer under section 92, unless it is for the purpose of enforcing a law or protecting public revenue and the Commissioner has consented, or a disclosure made with the consent of the person to whom the information relates (or at the request of a person acting on behalf of that person). Further, section 95 provides that an authorised officer is not required to disclose or produce in court any such information unless it is necessary for the purposes of the administration of a taxation law, or to enable a person to exercise a function imposed on the person by law.

Accordingly, to the extent that these provisions could interfere with a person’s privacy, any interference would not constitute an unlawful or arbitrary interference.

Permitted disclosures to TCV under the TA Act

Section 92(1)(e) of the TA Act permits a tax officer to disclose information obtained under or in relation to the administration or execution of a taxation law to a listed authorised recipient.

Consequential amendments to the TA Act pursuant to clause 48 of the Bill will now prescribe TCV as an authorised recipient where the disclosure is for the purpose of, or in connection with, the transition loan program introduced by the Bill. There will be instances where a tax officer (as defined in section 3(1) of the TA Act) may disclose information protected under section 91(1) of the TA Act to TCV to assist in its administration of the transition loan program.

To the extent that a tax officer’s discretionary power to disclose protected information to TCV engages the right to privacy, I consider that engagement to be neither arbitrary nor unlawful. These amendments ensure that the Commissioner and TCV can exercise their respective regulatory and administrative functions in accordance with legislation.

Property clearance certificates: TA Act

Clause 49 of the Bill amends section 95AA of the TA Act to provide for the inclusion of information relating to CIPT on property clearance certificates. This may engage the right to privacy to the extent that natural persons’ information may be disclosed.

Only an owner, mortgagee or bona fide purchaser may apply for a property clearance certificate under section ‍95AA of the TA Act. The Commissioner is required to disclose the amount payable with respect to any charge on the land for unpaid CIPT, whether the land is CIPT reform scheme land and, if so, when it became or will become subject to CIPT. The Commissioner may also provide additional information. This may include, for example, an amount of CIPT that has not yet been assessed, or information relating to another debt payable to the Commissioner under a revenue law with respect to that property.

To the extent that information that may be disclosed in a property clearance certificate is personal information, the right to privacy is engaged. However, the right to privacy is not limited. The disclosure contemplated by this amendment will not be arbitrary, nor will it constitute unlawful interference. The disclosure of this information will be expressly permitted by and subject to the secrecy provisions of the TA Act.

Section 32 statements: Sale of Land Act

Clause 63 of the Bill amends section 32A(c) of the Sale of Land Act to require certain land information relevant to CIPT to be disclosed in vendor statements. This may engage the right to privacy. To the extent vendors of land will be required to disclose this information to prospective purchasers, this is not unreasonable or arbitrary, as the amendment helps to reduce information imbalances between vendors and purchasers in property transactions.

Freedom of movement: Section 12

Section 12 of the Charter provides that every person lawfully within Victoria has the right to move freely within Victoria. As the Bill will be administered under the TA Act, the administration of CIPT may involve the exercise of the investigative powers provided in section 73 of the TA Act. These investigative powers may also be exercised in relation to the collection of reportable information under Part 9 of the TA Act.

As set out above, the administration of CIPT may involve the exercise of investigative powers provided in section 73 of the TA Act. Among other things, this section provides that the Commissioner or an authorised officer may exercise their power to direct a natural person to attend and give evidence in relation to a matter. Accordingly, a person’s right to move freely within Victoria may be engaged.

Although the power to compel a person to attend a particular place at a particular time may limit a person’s freedom to choose to be elsewhere at that time, this differs qualitatively from the types of measures that Victorian courts have regarded as engaging the right to freedom of movement, such as restrictions placed on a person’s place of residence, or ability to leave their residence, and police powers to conduct a traffic stop.

To the extent that section 73 of the TA Act limits the right of freedom of movement, any such limit is demonstrably justified under section 7(2) of the Charter, as the Commissioner’s power to compel a person’s attendance to give evidence will in certain circumstances be essential to obtain the information needed for the proper administration of the CIPT, and for the collection of reportable information in accordance with the TA Act.

Right to fair hearing: section 24(1)

The right to a fair hearing is protected under section 24 of the Charter which provides that a person charged with a criminal offence or a party to a civil proceeding have the right to a fair hearing. The right to a fair hearing applies to both courts and tribunals, such as the Victorian Civil and Administrative Tribunal. Generally, the right to a fair hearing is concerned with procedural fairness and access to a court or tribunal, rather than the substantive fairness of a decision of a court or tribunal determined on the merits of a case.

Clause 55 of the Bill inserts a new subsection (13) into section 135 of the TA Act to provide that it is the intention of sections 5, 12(4), 18(1), 96(2) and 100(4) of the TA Act, as those sections apply after the commencement of clause 55, to alter or vary section 85 of the Constitution Act 1975. These provisions preclude the Supreme Court from entertaining proceedings of a kind to which these sections apply, except as provided by those sections.

The central purpose of this Bill is to introduce the CIPT and provide for its administration under the TA Act consistent with other Victorian taxes. Section 5 of the TA Act defines the meaning of a non-reviewable decision in relation to the TA Act, which will apply to the Bill. ‘Non-reviewable’ is referred to in sections 12(4) and 100(4) of the TA Act.

The reason for limiting the jurisdiction of the Supreme Court in relation to a compromise assessment under section 12 of the TA Act is that agreement has been reached between the Commissioner and a taxpayer on the taxpayer’s liability, and the purpose of section 12 would not be achieved if a compromise assessment were reviewable.

Section 18 of the TA Act establishes a refund application procedure, adherence to which is a condition precedent to taking any further action for recovering refunds. The purpose of the provisions is to give the Commissioner the opportunity to consider a refund application before any collateral legal action can be taken. The purpose of these provisions would not be achieved if the Commissioner’s actions were subject to review.

Division 1 of Part 10 of the TA Act establishes an exclusive code for dealing with objections, and this Division will apply where the Commissioner issues a CIPT assessment. This code establishes the rights of objectors in a statutory framework and precludes any collateral actions for review of the Commissioner’s assessment. The objections and appeals provisions of Part 10 of the TA Act establish that review of assessments is only to be undertaken in accordance with an exclusive code identified in that Part. The purpose of these provisions would not be achieved if any question concerning an assessment was subject to judicial review except such judicial review as provided by Division 2, Part 10 of the TA Act.

A power is provided to the Commissioner under section 100 of the TA Act, which provides that Commissioner with discretion to allow an objection to be lodged even though it is out of time. This decision is non-reviewable to ensure the efficient administration of the TA Act and to enable outstanding issues relating to assessments to be concluded expeditiously.

To the extent that limiting the jurisdiction of the Supreme Court may limit a person’s fair hearing rights as protected under section 24(1) of the Charter, any such limit would be demonstrably justified. The classification of certain decisions under the TA Act as ‘non-reviewable’ is directly related to the particular statutory purpose and context of those particular decisions, and the TA Act provides an alternative regime for dealing with objections, which is necessary for the efficient discharge of the Commissioner’s functions under the TA Act, which will now include the administration of the Bill as a taxation law.

Presumption of innocence: section25(1)

The right in section 25(1) is engaged where a statutory provision shifts the burden of proof onto an accused in a criminal proceeding, so that the accused is required to prove matters to establish, or raise evidence to suggest, that the accused person is not guilty of an offence.

Sale of Land Act amendments and TA Act defence of reasonable excuse

The right to be presumed innocent may be considered relevant to clause 62 of the Bill as well as several offences under the TA Act which place an evidential burden on the defendant.

Clause 62 of the Bill amends offences in the Sale of Land Act to enforce a prohibition on passing on CIPT liability under certain arrangements over land, e.g. contracts of sale. The right to be presumed innocent may be considered relevant to these strict liability offences which place an evidential burden on the defendant to rely on a defence such as the defence of honest and reasonable mistake.

As outlined above, section 73 of the TA Act empowers the Commissioner to issue a written notice requiring a person to provide information, produce a document or thing, or give evidence. Section 73A provides that the Commissioner may certify to the Supreme Court that a person has failed to comply with a requirement of a notice issued under section 73. The Supreme Court may inquire into the case and may order the person to comply with the requirement in the notice. Section 73A(4) provides that a person who, without reasonable excuse, fails to comply with an order of the Supreme Court under section 73A(2), is guilty of an offence.

Section 88 of the TA Act makes it an offence for a person, without reasonable excuse, to refuse or fail to comply with a requirement made or to answer a question of an authorised officer asked in accordance with sections 81 or 86 of the TA Act.

Section 90 of the TA Act establishes a defence of reasonable compliance for offences relating to the investigation powers of authorised officers under Part 9 of the TA Act. It provides that a person is not guilty of an offence if the court hearing the charge is satisfied that the person could not, by the exercise of reasonable diligence, have complied with the requirement to which the charge relates, or that the person complied with the requirement to the extent that he or she was able to do so.

Although these provisions require a defendant to raise evidence of a matter to rely on a defence, they impose an evidential, rather than legal burden. Courts in other jurisdictions have generally taken the approach that an evidential onus on a defendant to raise a defence does not limit the presumption of innocence. The defences and excuses provided relate to matters within the knowledge of the defendant, which is appropriate in circumstances where placing the onus on the prosecution would involve the proof of a negative which would be very difficult.

Failure to exercise due diligence: TA Act

The right to be presumed innocent is also relevant to section 130C of the TA Act, which establish the criminal liability of an officer of a body corporate for the failure to exercise due diligence in certain circumstances, and which imposes a legal burden of proof on that officer. Section 130C provides that if a body corporate commits a specified offence, such as giving false or misleading information to tax officers contrary to section 57(1), or tax evasion contrary to section 61, an officer of the body corporate is also deemed to have committed the offence.

Section 130C(3) provides that it is a defence to a charge for an officer of a body corporate to prove that they exercised due diligence to prevent the commission of the offence by the body corporate. The defence in 130C(3) of the TA Act imposes a legal burden on the defendant. The imposition of a legal burden to rely on the defence of due diligence is compatible with the right to presumption of innocence in section 25(1) of the Charter, as any limits on the right will be reasonably justified under section 7(2) of the Charter. Section 130C applies only to a narrow range of offences of dishonesty, and only to officers of a body corporate as persons who carry on a specific role and possess significant authority and influence over the body corporate. Courts in other jurisdictions have generally taken the approach that an evidential onus on a defendant to raise a defence does not limit the presumption of innocence. Further, a defence is available for the benefit of an accused to escape liability where they have taken reasonable steps to ensure compliance in respect of what could otherwise be an absolute or strict liability offence.

The purpose of these provisions is to ensure compliance with the Bill by deterring intentional acts of dishonesty in the administration of the CIPT. A person who elects to undertake a position as officer of a body corporate accepts that they will be subject to certain requirements under the Bill and the TA Act and will be expected to be able to demonstrate their compliance with these requirements. This includes the expectation that an officer of a body corporate can demonstrate compliance with a requirement to exercise due diligence to prevent the commission of these offences of dishonesty by the body corporate taxpayer. Moreover, whether an officer of a body corporate has exercised due diligence is a matter peculiarly within the knowledge of that person.

Such persons are best placed to prove whether they exercised due diligence. Therefore section 130C(3) of the TA Act as it applies to the Bill is compatible with the right to the presumption of innocence protected by the Charter.

Rights in criminal proceedings: section25(2)(k)

Section 25(2)(k) of the Charter provides that a person charged with a criminal offence is entitled not to be compelled to testify against himself or herself or to confess guilt. The Supreme Court has held that this right, as protected by the Charter, is at least as broad as the common law privilege against self-incrimination. It applies to protect a charged person against the admission in subsequent criminal proceedings of incriminatory material obtained under compulsion, regardless of whether the information was obtained prior to or subsequent to the charge being laid. The common law privilege includes immunity against both direct use and derivative use of compelled testimony.

Section 86 of the TA Act, which will apply to the Bill, is outlined above. It is an offence to fail to comply with a requirement made or to answer a question under this section. Section 87(1) limits the right to protection against self-incrimination by providing that a person is not excused from answering a question, providing information, or producing a document or thing on the ground that to do so might tend to incriminate the person or make the person liable to a penalty. Section 87(2) provides that, if a person objects to answering a question, providing information, or producing a document or thing, the answer, information, document or thing is not admissible in any criminal proceeding other than proceedings for an offence against a taxation law, or proceedings for an offence in the nature of perjury.

Section 87(1) of the TA Act is a reasonable limit on the right to protection against self-incrimination under section 7(2) of the Charter. The ability of an authorised officer to require a person to give information or answer questions will be necessary for the proper administration of the Bill. Section 87(2) of the TA Act only authorises the admission of evidence obtained under section 87(1) in an offence against a taxation law, or proceedings for perjury, and otherwise preserves both the direct use immunity and derivative use immunity. This section directly promotes the objective of the TA Act, which is to facilitate the administration and enforcement of Victoria’s taxation laws and is a significant public purpose.

Further, with respect to the power of an authorised officer to require the production of documents, I note that at common law, the protection accorded to the compelled production of pre-existing documents is considerably weaker than the protection accorded to oral testimony or to documents brought into existence to comply with a request for information.

There are no less restrictive means available to achieve the purpose of enabling the proper administration of the Bill, as providing an immunity that applies to the offence of perjury or an offence under the Bill or the TA Act would unreasonably obstruct the role of the authorised person to investigate compliance with the Bill.

Conclusion

For these reasons, in my opinion, the provisions of the Bill are compatible with the rights contained in sections 12, 13, 20, 24(1), 25(1) and 25(2)(k) of the Charter.

TIM PALLAS MP

Treasurer

Second reading

Tim PALLAS (Werribee – Treasurer, Minister for Industrial Relations, Minister for Economic Growth) (10:14): I move:

That this bill be now read a second time.

I ask that my second-reading speech, except for the section 85 statement, be incorporated into Hansard.

Incorporated speech as follows, except for statement under section 85(5) of the Constitution Act 1975:

Introduction

It is with great pleasure that I rise to speak in support of this Bill, a Bill which will reform the taxation landscape of commercial and industrial property in Victoria by moving away from stamp duty and towards a more efficient tax.

I am honoured to be a part of the first government in Victoria’s history with a plan to abolish stamp duty on commercial and industrial properties in this State.

Replacing stamp duty on property purchases with a broad land-based tax has long been supported by a wide range of independent think tanks, policy commentators, industry groups and inquiries.

This is a transformational reform. It isn’t a simple adjustment to tax settings. It is a different way of taxing commercial and industrial property that will support business to grow and expand.

It will make it easier for businesses to expand or set up in the best location, for example closer to their customers or where there is a growing workforce.

Economic modelling suggests that after 40 years, this reform will have added 12,600 jobs to Victoria’s economy and have increased the size of the Victorian real economy by a cumulative $50 billion in net present value terms.

Overview of the Bill

The Bill introduces a new principal Act to provide the necessary legal powers to effectively introduce and administer this reform, and to help transition commercial and industrial properties from stamp duty to a more efficient tax. The Bill also amends other acts including the Duties Act 2000, the Treasury Corporation of Victoria Act 1992, the Taxation Administration Act 1997, the Valuation of Land Act 1960, the Heritage Act 2017, the Property Law Act 1958, the Retail Leases Act 2003, and the Sale of Land Act 1962.

This Bill follows the public announcement of the reform in the 2023–24 Budget. External consultation with key stakeholders and industry groups has been undertaken to ensure the design of the reform supports property owners through the transition.

Policy design

The new tax system proposed under this Bill will apply to commercial and industrial property transactions with a contract and settlement date on or after 1 July 2024. For these properties, stamp duty will be paid one final time and Commercial and Industrial Property Tax (property tax) will be payable 10 years after the final stamp duty payment, regardless of whether that property has transacted again.

If a property is sold again, stamp duty will not apply on that transaction if the property continues to be used for a commercial or industrial purpose.

To smooth the transition to the new tax system, the Government will give eligible purchasers of commercial or industrial property the option of accessing a government-facilitated transition loan to finance the upfront stamp duty if they desire.

The reform is designed to be revenue neutral over time, with the property tax replacing revenue from stamp duty.

Entry into the tax reform scheme

The Bill defines eligibility for entry into the reform scheme and defines when transactions will bring property into the scheme.

The reform will commence on 1 July 2024. People who own commercial or industrial property prior to that date and do not transact will not be directly affected.

For the first time a commercial or industrial property is transacted with a contract and settlement date on or after 1 July 2024, one final stamp duty liability will apply, and the property will automatically enter the reform scheme. A 10-year transition period will commence for that property upon settlement of that transaction. Once this transition period has passed property tax will be payable.

At settlement, the property purchaser will pay the property’s final stamp duty liability upfront by choosing to self-finance, or by financing the liability through a government-facilitated transition loan.

If the purchaser chooses the loan, the amount provided by the loan will be used to pay the full stamp duty payable at settlement of the property transfer. Following this, the purchaser will make fixed annual loan repayments over 10 years, equal in aggregate to the property’s stamp duty liability plus interest.

The Bill amends the Duties Act 2000 such that stamp duty will not be payable on future transactions of that property as long as it continues to have a commercial or industrial use.

Property will automatically enter the reform scheme if a contract of sale is entered on or after 1 July 2024, the transaction relates to 50 per cent or more of the property, there is a positive stamp duty liability, and the property has a qualifying commercial or industrial use at settlement.

Transactions such as landholder acquisitions or fractional interest transactions where less than 100 per cent of a property is transacted will cause a property to enter the reform scheme if the transaction relates to 50 per cent or more of the property.

Transactions eligible for the corporate reconstruction or consolidation concessions will not trigger entry into the reform scheme. This ensures an ongoing tax liability does not result from efficiency improving restructuring of corporate groups.

Dutiable lease transactions and economic entitlement transactions will not trigger entry into the reform scheme. These types of transactions occur infrequently.

Commercial and industrial property transactions that are exempt from stamp duty will not cause a property to enter the reform. These include transfers such as deceased estates, a transfer to a spouse or partner, and purchases by charities and friendly societies.

Existing stamp duty concessions will continue to apply for the final stamp duty liability on the property. This includes the stamp duty concession for property purchased in regional Victoria for commercial, industrial, and extractive industry purposes.

The Bill defines a property as having a qualifying commercial or industrial use if the property is allocated an Australian Valuation Property Classification Code that represents commercial, industrial, extractive industries, or infrastructure and utilities land. These codes fall in the range of 200 to 499 and 600 to 699.

In addition, some student accommodation will be included as a qualifying use for the purpose of the reform, despite having an Australian Valuation Property Classification Code outside of the qualifying range. Land which is solely or primarily used as commercial residential premises and also solely or primarily used for providing accommodation to tertiary students will be considered commercial property.

Some properties have a mix of qualifying and non-qualifying uses, for example a street shop with a residence above. For these properties, a sole or primary use test will be used to determine if the property will enter the reform scheme upon a qualifying transaction.

If reform properties and non-reform properties are consolidated into a single property, the consolidated property will be deemed to be in the reform scheme if 50 per cent or more of the consolidated property is in the scheme.

Child lots of a property that is subdivided will inherit the reform scheme status of the parent property.

Commercial and Industrial Property Tax

The Commercial and Industrial Property Tax Reform Act 2024 implements the property tax, which will commence 10 years after settlement of the entry transaction.

The property tax replaces stamp duty for the property and will only apply for commercial or industrial property that is in the reform scheme.

The property tax will not apply to property used primarily for residential purposes.

Exemptions that apply to land tax will also apply to property tax for relevant commercial or industrial property. Therefore, commercial or industrial property primarily used for primary production, community services or sport, heritage, and culture purposes will be exempt from property tax if the criteria for exemption under the Land Tax Act 2005 are met.

The property tax rate will be a flat one per cent of that property’s unimproved land value per annum, with no tax-free threshold. It will be separate from, and in addition to the existing land tax system.

Like land tax, taxpayers will be able to pay property tax in a single annual payment or by instalments.

For property with a mixture of uses, if property tax applies, it will apply to the entire value of the property.

The Bill amends the Retail Leases Act 2003 to align the treatment of the property tax with land tax, including prohibiting the property tax from being passed on to certain tenants subject to a retail lease under the Retail Leases Act 2003.

Passing on property tax to residential renters will also be prohibited through provisions included in the Commercial and Industrial Property Tax Reform Act 2024.

The Bill also amends the Heritage Act 2017, the Property Law Act 1958, the Sale of Land Act 1962, and the Valuation of Land Act 1960 to ensure consistency between the treatment of property tax and land tax and allow for the administration of the reform.

Transition loan

As part of the transitional support built into this Bill, taxpayers will have the choice of paying the final stamp duty liability for a property upfront either using their own finances, or by accessing a government facilitated transition loan. The loan will in turn pay off the stamp duty liability upon settlement and be repaid by the taxpayer in annual instalments over 10 years.

The taxpayer has the freedom to take-up the loan if it suits their circumstances, however they are not mandated to and are free to pay their stamp duty without a government facilitated transition loan using their own finances.

The transition loan will help smooth the transition to the new tax system and allow eligible taxpayers who opt for the loan to transition towards annual payments from the time of purchase.

The loan will help free up capital for businesses to invest in property improvements and expand their business. This will be of particular benefit to small and medium-sized businesses as the loan will be available for property with a purchase price of up to $30 million.

To facilitate the implementation of the transition loan, the Bill amends the Treasury Corporation of Victoria Act 1992 to empower Treasury Corporation of Victoria to administer the transition loan program. This additional power is confined to this specific transition loan program only.

The Bill allows the Treasurer to determine by written notice any matters necessary for the operation of the transition loan program, such as eligibility criteria and key lending terms. These lending terms will include parameters the Government has already announced. For example, that borrowers will be required to make ten equal repayments based on the property’s final upfront stamp duty liability and a fixed commercial market-based interest rate.

The Bill also gives the Treasurer the power to execute a guarantee in favour of Treasury Corporation of Victoria in relation to the performance of borrowers’ obligations under transition loan agreements on any terms and conditions that the Treasurer determines.

Treasury Corporation of Victoria will have a first ranking statutory charge over the borrower’s interest in the land relating to the loan. As outlined in the Bill, this charge will be prioritised ahead of all other encumbrances. TCV must record this charge with the Registrar on the land title to inform prospective purchasers.

In addition, the Bill includes provisions to prevent a loan from being novated or transferred to a third party or subsequent purchaser. If the property is subsequently sold, the borrower will be obliged to repay the outstanding balance of the loan before it can be effectively transferred. The Bill supports this by restricting the Registrar from transferring land title in instances where the statutory charge has not been removed from the title. Further, the borrower will be contractually obliged under the transition loan agreement to repay the outstanding balance of the loan if the property changes to a non-qualifying use.

Information regarding the existence of the statutory charge recorded on the certificate of land title will be publicly accessible by interested parties, including prospective purchasers, through a title search. This information will also be included as part of a Section 32 Statement provided by vendors to prospective purchasers under the Sale of Land Act 1962. In addition, the Bill provides Treasury Corporation of Victoria with the power to provide information in connection with the transition loan program or the statutory charge to any person it thinks fit.

Industry consultation

In designing the reform, the Government engaged with the property, real estate and financial sectors. The Government consulted with policy advocacy groups, chambers of commerce, planning and local government representative groups and the tax law community.

Feedback from these sectors was used to inform the final design of the reform. This feedback has helped ensure that the reform maximises the economic benefits for Victoria and supports business.

Administrative powers

The Commissioner for State Revenue will be able to recover property tax subject to a tax default from lessees, mortgagees or occupiers of the land, subject to the Commissioner serving a written notice. This is consistent with land tax recovery provisions.

The Bill amends the Taxation Administration Act 1997 to extend the provisions for the administration and enforcement of taxation laws to the property tax and the tax reform scheme.

The Bill also amends this Act to permit disclosure of taxpayer information to the Treasury Corporation of Victoria for the purposes of the transition loan program.

Further amendments to the Taxation Administration Act 1997 include allowing property clearance certificates issued to prospective purchasers of land to be updated with information on whether the land is tax reform scheme land, when it became tax reform scheme land, and when the land will become or became subject to the property tax.

The Bill introduces additional anti-avoidance provisions through amendments to the Duties Act 2000, including the introduction of change of use duty that may apply to properties that received a stamp duty exemption and subsequently changed to a non-qualifying use.

Change of use duty will disincentivise taxpayers from avoiding stamp duty by purchasing a property that is in the reform and converting it to a residential or other use.

The Commercial and Industrial Property Tax Reform Act 2024 will require the aggregation of multiple qualifying dutiable transactions for the purpose of determining entry of properties into the reform scheme. This is an integrity measure to ensure properties cannot be kept outside of the reform scheme by splitting up a transaction.

Implementation

Subject to parliamentary endorsement, the reform will begin on 1 July 2024. In the lead up to the start date, the Government will provide educational support on the reform, including helping industry and taxpayers navigate the new scheme given its complexities and transformational nature.

Once again, I note that this reform only applies to commercial and industrial properties which are transacted under contracts entered into on or after 1 July 2024. Transactions with contracts signed before this date will not be affected.

This provides a clear and transparent break so that previous property purchasers who are awaiting settlement are not impacted, and prospective purchasers will be fully informed of the new tax system before entering a contract.

We’re making history by being the first government in Victoria to eliminate stamp duty on commercial and industrial properties in this State. This reform will encourage businesses to invest, create jobs and grow, and help drive productivity in our state. And it will facilitate this transition in a manner that supports businesses in a sustainable way.

Jurisdiction of the Supreme Court of Victoria

I draw the members’ attention specifically to clause 55 of the Bill. This clause proposes to limit the jurisdiction of the Supreme Court to ensure that the legislative regime under the TAA applies to property tax in the same way as it does in relation to any other taxation law. Accordingly, I provide a statement under section 85(5) of the Constitution Act 1975 of the reasons for altering or varying that section by this Bill.

I commend the Bill to the house.

Section 85(5) of the Constitution Act 1975

Tim PALLAS: I wish to make a statement under section 85(5) of the Constitution Act 1975 of the reasons for altering or varying that section by the Commercial and Industrial Property Tax Reform Bill 2024.

Section 85 of the Constitution Act 1975 vests the judicial power of Victoria in the Supreme Court and requires a statement to be made when legislation that directly or indirectly repeals, alters or varies the court’s jurisdiction is introduced. Clause 55 of the bill inserts a new subsection (13) into section 135 of the Taxation Administration Act 1997 to provide that it is the intention of sections 5, 12(4), 18(1), 96(2) and 100(4) of the Taxation Administration Act 1997, as those sections apply after the commencement of the bill, to alter or vary section 85 of the Constitution Act 1975.

This bill reforms the taxation of commercial and industrial property by introducing the commercial and industrial property tax. Division 2 of Part 5 of the bill makes consequential amendments to the Taxation Administration Act 1997 to enable the CIPT, consistent with other state taxes, to be administered under the Taxation Administration Act 1997 and any regulations made under it.

The Supreme Court’s jurisdiction is altered to the extent that the Taxation Administration Act 1997 provides for certain non-reviewable decisions and establishes an exclusive code that prevents proceedings concerning an assessment or refund or recovery of tax being commenced except as provided by that act. It is desirable that the legislative regime under the Taxation Administration Act ‍1997 applies to the CIPT in the same way as it does to other taxes administered under the Taxation Administration Act 1997.

Accordingly, in order to ensure that the jurisdiction of the Supreme Court is limited in relation to the CIPT in the same way as it is in relation to other Victorian taxes, it is necessary to provide that it is the intention of this bill, for the relevant provisions of the Taxation Administration Act 1997 to apply to the administration of the CIPT, and for the jurisdiction of the Supreme Court to be altered accordingly.

Section 5 of the Taxation Administration Act 1997 defines the meaning of ‘non-reviewable decision’ in relation to that act, which will also apply to the CIPT. No court, including the Supreme Court, has jurisdiction or power to entertain any question as to the validity or correctness of a non-reviewable decision.

Section 12(4) of the Taxation Administration Act 1997 provides that the making of a compromise assessment is a non-reviewable decision. Similarly, section 100(4) provides that a decision by the commissioner of state revenue not to permit an objection to be lodged out of time is a non-reviewable decision. Decisions may be made under section 12(4) or section 100(4) in relation to the CIPT.

Section 18(1) of the Taxation Administration Act 1997 prevents proceedings being commenced in the Supreme Court for the refund or recovery of a tax except as provided in part 4 of the Taxation Administration Act 1997. As the CIPT will be a tax for the purposes of section 18(1), proceedings for its refund or recovery will be similarly limited.

Section 96(2) of the Taxation Administration Act 1997 prevents a court, including the Supreme Court, considering any question concerning an assessment of a tax except as provided by part 10 of the Taxation Administration Act 1997. As the CIPT will be a tax for the purposes of section 96(2), proceedings in relation to any assessment of CIPT would be similarly limited.

To ensure that the jurisdiction of the Supreme Court is limited in relation to the CIPT in the same way as it is in relation to other taxes administered under the Taxation Administration Act 1997, it is necessary to provide that it is the intention of sections 5, 12(4), 18(1), 96(2) and 100(4) of the Taxation Administration Act 1997 to alter or vary section 85 of the Constitution Act 1975.

I commend the bill to the house.

James NEWBURY (Brighton) (10:20): I move:

That debate be adjourned.

Motion agreed to and debate adjourned.

Ordered that debate be adjourned for two weeks. Debate adjourned until Thursday 4 April.