Victorian Budget 2023-24
On 23rd May 2023, Treasurer Tim Pallas delivered the Victorian State Budget 2023-24.
The budget proposes several changes to Victoria's tax system, with significant implications for businesses regarding payroll tax, land tax, and stamp duty reform for commercial and industrial properties.
Property investors face higher land tax rates.
One notable change is the introduction of a 10-year Debt Levy aimed at businesses with an annual Australian payroll exceeding $10 million. The levy aims to assist in debt recovery, resulting in higher payroll tax bills for around 4,000 SMEs and large businesses, as well as increased land tax bills for approximately 380,000 landowners.
These changes may place an additional burden on mid-market businesses already facing cost pressures due to rising labor expenses, energy bills, and other operational costs. Consequently, the cost of doing business in Victoria is likely to increase compared to other states. This financial strain may be further amplified as business activity slows down in 2023-24.
However, micro businesses with wages below $1 million will find some relief as they will be exempt from payroll tax due to an increased tax-free threshold. This adjustment is estimated to benefit around 4,200 businesses by eliminating payroll tax, while reducing taxes for an additional 22,000 businesses.
The Debt Levy, which will be implemented through the payroll tax system, is scheduled to commence on 1st July 2023. Businesses with national payrolls exceeding $10 million per year will be subject to an additional 0.5% levy on top of the existing payroll tax rate. Businesses with a payroll over $100 million will face an additional 0.5% levy.
Property investors with landholdings valued above $300,000, as well as trust taxpayers with property holdings exceeding $250,000, will experience a temporary increase in land tax rates. Non-trust taxpayers will face an increase of $975 plus 0.1% of the value of landholdings above $300,000, while trust taxpayers will see the increase for landholdings above $250,000.
The Debt Levy is expected to generate $2 billion from business and property owners in 2023-24. The projected tax revenue is estimated to grow by an average of 4.9% annually over the forward estimates, reaching $2.3 billion in 2026-27.
While the Budget provides support for micro businesses by reducing payroll tax, mid-market businesses, considered the backbone of the economy, will face higher taxation. The Government plans to eliminate the payroll tax-free threshold for businesses sooner, gradually reducing the threshold for each dollar a business pays in wages over $3 million. Businesses with wages over $5 million will no longer benefit from the threshold.
These measures may contribute to an inflationary environment, potentially resulting in increased prices for goods and services or businesses needing to make adjustments by reducing staff or resources.
The announcement regarding the end of stamp duty for commercial and industrial property, replaced by an annual property tax, lacks specific details. Clarity is necessary regarding the definition of industrial and commercial property, particularly for developers who may encounter complexities with sites zoned for industrial/commercial use but suitable for residential development.
In addition to these measures, the Budget includes further revenue-boosting actions, such as raising the land tax surcharge for foreign property investors from 2% to 4%. Furthermore, around 110 non-government schools in Victoria will lose their payroll tax exemption starting from 1st July 2024, targeting the top 15% of schools based on fees paid.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your advisor.