A change in use of a property that has entered the commercial and industrial tax (CIPT) reform can have several consequences, including notification obligations and change of use duty.
What is a change of use?
A property must have a qualifying use to enter and stay in the CIPT reform.
A change of use of a property will occur if a property in the CIPT reform changes its use from a qualifying to a non-qualifying use (or vice versa). This includes the following situations:
- the Australian Property Valuation Classification Code (AVPCC) allocated to a property changes from an AVPCC within the range of 200-499 and 600-699 to an AVPCC outside that range (or vice versa)
- the Commissioner determines that the primary use of a mixed-use property (i.e. a property that is allocated multiple AVPCCs, some of which are inside and outside the range of 200-499 and 600-699) changes from a commercial or industrial use to a non-commercial or industrial use such as a residential use.
A change of use of a property that is in the CIPT reform from a qualifying use to a non-qualifying use can have several duty consequences, including:
- duty may be chargeable, in certain circumstances, on a transaction that occurred after the property entering the CIPT reform but before the change of use (known as ‘change of use duty’)
- duty becomes chargeable, as normal, on any dutiable transaction after the change of use.
Example 1
A property entered the CIPT reform in 2024. It was allocated an AVPCC of 220 (office premises) in its 2024 and 2025 annual general valuation by the Valuer-General of Victoria. The property is allocated an AVPCC of 110 (detached dwelling) in its 2026 annual valuation. This is a change of use.
Notification of change of use
You must notify the Commissioner if your property or part of your property undergoes a change of use. You must give the notice to the Commissioner within 30 days after the change of use.
You must notify us of a change in use in a broad range of circumstances, including where the actual use of your property or part of your property changes from a commercial or industrial use to a non-commercial or industrial use such as a residential use (or vice-versa).
You must notify us of an actual change in use regardless of whether there has been a change in the AVPCC allocated to your property.
What is change of use duty?
A change of use of a property from a qualifying to a non-qualifying use can trigger ‘change of use’ duty. You may be liable for change of use duty if:
- a property entered the CIPT reform;
- you received a CIPT exemption or partial exemption from duty on a transaction involving the property on the basis that the property had a qualifying use at that time (the subsequent transaction);
- the property later changes in use to a non-qualifying use; and
- if the subsequent transaction was:
- a standard transaction (e.g. a transfer of the property), you held an interest in the property when the property changed use; or
- a non-standard transaction (e.g. the grant of a lease), certain additional requirements are satisfied.
- a relevant acquisition in a landholder, certain additional requirements are satisfied including that you held an interest in the landholder when the property changed use.
Change of use duty does not apply if there is no subsequent transaction or the subsequent transaction was not exempt or partially exempt from duty.
Change of use duty is intended to ensure that a property that is ineligible for CIPT (the annual property tax) because of a change of use does not also get the benefit of the related CIPT duty exemptions. Without change of use duty, a purchase of a property in the CIPT reform followed by a subsequent change of use could result in no duty or CIPT consequences.
If change of use duty is not paid within 30 days of the change of use, interest and penalty tax may be chargeable in addition to change of use duty.
Additional requirement for non-standard subsequent transactions
For non-standard subsequent transactions, the following requirement must also be satisfied at the time of the change of use:
- for a non-standard transaction that is the grant, assignment or transfer of a dutiable lease (being of lease referred to in section 7(1)(b)(v) or (va) of the Duties Act), the lessee continues to lease the relevant property or part of the property
- for a non-standard transaction that is the surrender of a dutiable lease (being a lease of a kind referred to in section 7(1)(b)(v) or (va)), the person to whom the lease is surrendered continues to hold an interest in the relevant property or part of the property
- for a non-standard transaction that relates to fixtures (specifically, dutiable property referred to in section 10(1)(ad) of the Duties Act located on a property in the CIPT reform), the transferee continues to hold an interest in the fixtures
- for a non-standard transaction that is the acquisition of an economic entitlement, the arrangement under which the economic entitlement was obtained is still in effect and the person who acquired the economic entitlement continues to be a party to the arrangement.
How do you calculate change of use duty?
Change of use duty is calculated based on the duty that would have been payable on the subsequent transaction to the extent that the transferee or acquirer continues to hold an interest in the property following the change of use.
The amount of duty is reduced by 10% for each calendar year that has elapsed (i.e. every 31 December that has passed) since that previous transaction.
Example 2
On 13 July 2025, Jade transfers a 100% interest in a property to Karthik. The property has been allocated an AVPCC within the prescribed range for commercial and industrial property. This is an entry transaction that causes the property to enter the CIPT reform.
On 3 December 2027, Karthik transfers the property to Lorraine. The transfer to Lorraine is exempt from duty as the entry interest for the property was 100%.
On 14 March 2029, Lorraine commences redevelopment works on the property to convert the property to residential apartments having secured a planning permit for the residential works. At this time, the AVPCC allocated to the property remains within the prescribed range.
The redevelopment works evidence a change in the actual use of the property. Lorraine, as the owner of the tax reform scheme land, is required to notify the Commissioner of the change of actual use of the property within 30 days after the commencement of the redevelopment works. Lorraine must make this notification despite there being no change to the AVPCC allocated to the property.
The Valuer-General of Victoria subsequently updates the AVPCC it has allocated to the property to reflect the change in use of the property. The new code falls within the AVPCC residential category and was allocated to the property in February 2030. As a result, there is a change in use and the Commissioner must reassess the transfer of property made to Lorraine on 3 December 2027.
The amount of duty that Lorraine is liable to pay is reduced by 10% for each 31 December that has elapsed since the property was transferred to Lorraine. Accordingly, Lorraine will receive a 30% reduction in duty.
Example 3
On 1 June 2026, a private company purchases a 100% interest in a $3 million commercial property that has a qualifying use. The transfer satisfied all the requirements to be an entry transaction. The property enters the CIPT reform and its entry interest is 100%. The company holds no other interest in property.
On 26 July 2026, Siobhan acquires a 100% interest in the company under a relevant acquisition (Relevant Acquisition 1). The only land holding of the company is the property in the CIPT reform. No duty is payable on Relevant Acquisition 1 as the entry interest for the property is 100%.
On 18 October 2028, Jimmy acquires a 50% interest in the company from Siobhan under a relevant acquisition (Relevant Acquisition 2). The only land holding of the company is the property in the CIPT reform. No duty is payable on Relevant Acquisition 2 as the entry interest was 100%.
On 3 February 2030, there is an actual change in use of the property and the property begins being used for a residential use. The AVPCC for the property is updated to reflect the change in use. Accordingly, the property no longer has a qualifying use.
For Relevant Acquisition 1, change of use duty is payable to the extent that the interest in property Siobhan is taken to have acquired is the same as the interest Siobhan is taken to hold at the time of the change of use.
At the time of the change of use, Siobhan continues to hold a 50% interest in the landholder and the land holdings of the landholder include the property in the CIPT reform. Accordingly, Siobhan is taken to hold a 50% interest in the property at the time of the change of use.
Duty is payable on Relevant Acquisition 1 on the 50% interest in the property that Siobhan is taken to hold based on the unencumbered value of the property in the CIPT reform at the time of Relevant Acquisition 1. The duty payable by Siobhan on Relevant Acquisition 1 is reduced by 40% because 4 calendar years have passed since the date of Relevant Acquisition 1 and the change of use.
For Relevant Acquisition 2, change of use duty is payable to the extent that the interest Jimmy acquired under Relevant Acquisition (50%) is the same as the interest Jimmy held at the time of the change of use of the land (50%).
Duty is payable on Relevant Acquisition 2 on the full amount of duty payable on Relevant Acquisition 2 based on the unencumbered value of the property at the time of the change of use. The duty payable by Jimmy on Relevant Acquisition 2 is reduced by 20% as 2 calendar years have passed since the date of Relevant Acquisition 2 and the change of use.
The company, as the owner of the property at the time the actual use of the property changed was required to notify the Commissioner of the change of use of the property within 30 days after 3 February 2030.
If the property change in use back to a qualifying use, there will be no new 10-year transition period for the property. Accordingly:
- if the original 10-year transition period has expired when this change of use occurs, CIPT will be payable on the next 31 December
- if the original 10-year transition period had not yet expired, CIPT becomes payable on the next 31 December after the original 10-year period has expired.
If a property changes use to a non-qualifying use and then returns to a qualifying use, there is no refund of any change of use duty payable on a transaction as a result of the change of use to a non-qualifying use.
