Qualifying use

For a property to enter the commercial and industrial property tax (CIPT) reform the property must have a ‘qualifying use’ under the Australian Valuation Property Classification Code (AVPCC) at the relevant time. 

Certain prescribed student accommodation also has a qualifying use. 

Each separate occupancy on a property is allocated an AVPCC under the Valuation of Land Act 1960 (Vic). The AVPCC is displayed on the council rates valuation notice for the property.

Property with one or more AVPCC within the prescribed range

If a property has been allocated one or more AVPCC all of which are in the following prescribed range, the land will have a qualifying use for CIPT:

• 200-299 (commercial)
• 300-399 (industrial)
• 400-499 (extractive industries)
• 600-699 (infrastructure and utilities).

Examples of commercial and industrial property include a retail premises, an office and a warehouse.

Learn more about AVPCCs.

Whether property has a qualifying use for the CIPT reform is determined on a title-by-title basis. 

Mixed use land

Property may be allocated more than one AVPCC, one or more of which is in the prescribed range and one or more AVPCC may be outside the prescribed range. In this case, the property will have a qualifying use if it is used solely or primarily for one of the prescribed uses. The primary use of property is determined by the Commissioner.

If the sole or primary test indicates that property with several occupancies has a qualifying use, then the CIPT reform will apply to the entire mixed use property if there is an entry transaction.

The concept of property being used solely or primarily for a particular purpose is not a new concept. For example, it is already a feature of the regime for foreign purchaser additional duty and for the primary production land tax exemption.

Although no single factor is determinative, the factors that the Commissioner may take into account to determine the sole or primary use of property include, but are not limited to, the following:

• The area of land over which each use extends. The area of floor space of the building that is used for a qualifying use and a non-qualifying use respectively. If more than 50% of the floor space is designed and built for a qualifying use, an inference could be drawn that the building is primarily used for a qualifying use.
   
• Intensity of use. The intensity of the qualifying versus non-qualifying use. For example, if 70% of the building is designed to be used as a professional office suite and the other 30% of the building is designed to be used as a single apartment for a couple or small family, there is a greater intensity of the qualifying use.
   
• Level of investment. The level of investment undertaken by the landowner. A greater investment in the component of the building designed for a qualifying use provides an inference that the land could be used primarily for a qualifying use. 
   
• Amount of return on investment (if each use provides a return on investment). Where a greater proportion of the return is derived from that part of the building that has a qualifying use, it is more likely that the land will have a qualifying use.
   
• Zoning of land. The zoning of the land as well as any overlays, planning restrictions or covenants which impact the purpose or intended purpose of the land and buildings. For example, land that is located in a commercial zone and is limited to specific non-commercial purposes is more likely to have a qualifying use.

It is the current use of the property by the landowner that is determinative of whether mixed use land has a qualifying use. A potential purchaser of mixed use property may intend to use the property primarily for a use described in the prescribed range.

However, in determining whether mixed use property has a qualifying use at a particular time, it is the actual use of the property that is relevant rather than possible future use of the property by the current landowner or a potential purchaser of the property.

A key question of characterisation for mixed use property is whether the use of the property imparts on the property the necessary character of it being used primarily used for that use. To this end, the use of the property must not be minimal, slight, intermittent or spasmodic to be considered the sole or primary use.

Student accommodation

A property will have a qualifying use if it is used solely or primarily as eligible student accommodation. Eligible student accommodation means residential premises that are:

• designed for occupation by students of a higher education provider; and
• occupied or available for occupation by students of a higher education provider; and
• "commercial residential premises" within the meaning of section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 of the Commonwealth (GST Act).

The definition of commercial residential premises in the GST Act in this content requires that the premises must not be used to provide accommodation to students “in connection” with a higher education institution (e.g. a university). If it is, then the premises will not be commercial residential premises and will consequently not be eligible student accommodation (i.e. it will not have a qualifying use). In this context, there are a broad range of factors to be considered when determining if a property provides accommodation to students "in connection with" a higher education institution and no single factor is determinative. 

Examples of premises that are not commercial residential premises and therefore not eligible student accommodation include:

• university or tertiary college owned and run residential accommodation
• privately owned accommodation let to a university or tertiary college for student accommodation
• privately owned and run accommodation for students of a particular higher education institution under an arrangement or agreement with that institution.