A property with a qualifying use that has entered the commercial and industrial property tax (CIPT) reform (i.e. tax reform scheme land) may change to a different use over time. For example, a commercial warehouse that has entered the CIPT reform may later be redeveloped into residential apartments.
Change of use duty may be chargeable where a property that has entered the CIPT reform changes its use to a non-qualifying use following a subsequent transaction that was exempt or partially exempt from duty. Change of use duty does not apply if a transaction was not exempt or partially exempt from duty.
What is change of use duty?
A transaction in relation to tax reform scheme land (i.e. a property that has entered the CIPT reform) that was exempt or partially exempt may be chargeable with change of use duty if:
- a full or partial exemption for duty applied to the dutiable transaction by which the owner acquired an interest in the tax reform scheme land or to the relevant acquisition in a landholder holding an interest in the tax reform scheme land
- after the dutiable transaction or relevant acquisition, there is a change in use of the tax reform scheme land
- as a result of the change of use, the property no longer has a qualifying use
- for a dutiable transaction, at the time of the change of use the transferee under the dutiable transaction continues to hold an interest in the tax reform scheme land (the assessable interest)
- for a relevant acquisition, at the time of the change of use, the land holdings of the landholder include an interest in the tax reform scheme land and the person who made the relevant acquisition continues to hold an interest in the landholder.
Without these provisions a transaction which received an exemption from duty prior to the change of use will have no duty applied, nor will CIPT be payable in respect of the property as the property no longer has a qualifying use.
What is a change of use?
Change of use duty may apply to tax reform scheme land that has changed from a qualifying use to a non-qualifying use.
For property that has been allocated one or more AVPCC that are all within the prescribed range for a qualifying use, there must be a change in the AVPCC allocated to the property for a change of use to occur.
The Valuer-General of Victoria as the rating authority for Victoria determines the allocation of an AVPCC to property as part of the general valuation process, including any supplementary valuation of the property.
For mixed use property, where there is one or more AVPCC within the prescribed range and one or more AVPCC outside the prescribed range, there will be a change of use of the property resulting in the property no longer having a qualifying use if the Commissioner determines that the property is no longer used solely or primarily for a use that is within the prescribed range.
Notification of change of use
The owner of tax reform scheme land must notify the Commissioner if the property or part of the property undergoes a change of use. This notice must be given to the Commissioner within 30 days after the change of use.
The notification requirement applies in a broad range of circumstances. The owner of tax reform scheme land must notify the Commissioner if any of the following occur:
- If the property has a qualifying use with reference to the one or more AVPCC allocated to the property, a change that results in it no longer having a qualifying use.
- If the property does not have a qualifying use with reference to one or more AVPCC allocated to the property, a change that results in it having a qualifying use.
- The actual use of the property or part of the property changes from a use within the prescribed range for commercial and industrial property to a use that is not within the prescribed range.
- The actual use of the property or part of the property changes from a use that is not within the prescribed range for commercial and industrial property to a use that is within the prescribed range.
Failure to notify the Commissioner of the change of use of the property within the prescribed 30-day period may result in penalty tax being payable.
Also, interest and penalty tax may be chargeable if change of use duty is not paid within 30 days of the change of use. Interest and penalty tax is in addition to change of use duty.
Calculation of change of use duty
Change of use duty may be chargeable where property that has entered the CIPT reform changes its use to a non-qualifying use following a subsequent transaction that was exempt or partially exempt from duty.
Change of use duty is calculated based on the duty that would have been payable when the property was previously transacted 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 1
On 13 July 2025, Jade transfers a 100% interest in 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 2
On 1 June 2026, a company purchased a 100% interest in qualifying use property and becomes a landholder. This is an entry transaction for the property and the property becomes tax reform scheme land. The landholder holds no other interest in property.On 26 July 2026, Siobhan acquires a 100% interest in the landholder under a relevant acquisition (Relevant Acquisition 1). As the landholder only holds tax reform scheme land, no duty is payable on Relevant Acquisition 1.
On 18 October 2028, Jimmy acquires a 50% interest in the landholder from Siobhan under a relevant acquisition (Relevant Acquisition 2).
The landholder continues to hold a 100% in the tax reform scheme land and no other property.
As the landholder only holds tax reform scheme land, no duty is payable on Relevant Acquisition 2.
On 3 February 2030, there is a change in use of the property as the property is now used for residential purposes. 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 tax reform scheme land. 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 tax reform scheme land 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 landholder, 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 property in the CIPT reform returns to a qualifying use, there is no new transition period. Rather, if the original 10-year transition period has expired 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 that period has concluded.
No refund on change of use duty will be given if property returns to a qualifying use.
