Victorian State Budget 2021-22: Significant Tax Changes & Their Impact On Private Business

The Field Group - Accountants & Business Advisors > Blog > Victorian State Budget 2021-22: Significant Tax Changes & Their Impact On Private Business

On 20 May 2021, State Treasurer Tim Pallas handed down the 2021/22 Victorian state budget. The budget aims to chart a road to post-COVID economic recovery, including by raising state revenue. To help fund investments in mental health, education and public transport, the budget contains significant tax hikes aimed at well-to-do property investors, developers and private businesses, alongside modest tax relief to some small businesses and first home buyers.

For business, the major announcement in this budget is a hike in the payroll tax rate for those with national payrolls exceeding $10 million. The tax collected from this increase will be earmarked to pay for improvements to the state’s mental health system.

There were other tax increases announced as the Victorian government shifts its focus to budget repair. Those include a new 50 per cent tax on the gains from rezoning decisions on gains above $500,000, higher stamp duty rates on properties above $2 million and an increase in the land tax rate for taxable landholdings above $1.8 million.

Read on for a full breakdown of some of the tax changes in this year’s State Budget, and what they mean for property owners and private businesses.

1. Payroll tax changes

Payroll levy for businesses with national payrolls over $10 million a year

The ‘Mental Health and Wellbeing Levy’ is being implemented upon the recommendation of the Royal Commission into Victoria’s Mental Health System to introduce a new revenue stream for funding mental health services in Victoria.

Businesses with national payrolls of over $10 million per year will pay a payroll tax surcharge of 0.5% (effectively raising the rate from 4.85% to 5.35%), while businesses with national payrolls above $100 million will pay a surcharge of 1% (effectively raising the rate from 4.85% to 5.85%). The surcharge rates will be paid on the Victorian share of wages above the relevant threshold. The Government will legislate that revenue from this surcharge must be spent on mental health services.

While the Government has stated that the levy is aimed at large businesses that continued to profit through the pandemic, the Business Council of Australia has criticised the levy for ‘taxing jobs’. The new levy raises payroll tax for most Victorian businesses to roughly the same headline rate of payroll tax as NSW, although businesses with national payrolls in excess of $100 million will pay a higher rate of tax in Victoria than in NSW. However, in contrast, NSW payroll tax-free threshold is much more generous, at $1,200,000.

Bringing forward payroll tax changes

The Government is also bringing forward an increase in the payroll tax-free threshold, which will increase from $650,000 to $700,000 from 1 July 2021. As a result of these changes, the Government estimates approximately 500 businesses will no longer be liable for payroll tax in the 2021-22 financial year, and a further 42,000 businesses will pay less payroll tax. However, in contrast, every other Australian State has a payroll tax threshold in excess of $1 million.

The Government is also bringing forward reductions in the regional employer rate of payroll tax – from 1 July 2021, the regional employer rate will reduce from 2.02% to 1.2125%. This is aimed at reducing taxation burdens on regional businesses as they recover from difficulties associated with COVID-19 lockdowns.

2. Transfer duty rate changes and concessions

Transfer duty increase for property transactions in excess of $2 million

From 1 July 2021, property transactions worth more than $2 million will be taxed with a higher transfer duty rate of 6.5% of the dutiable value in excess of $2 million.

The Victorian Government’s steps to increase transfer duty contrast with the approach of the NSW Government to transfer duty; NSW is currently considering a plan to replace transfer duty with an annual property tax. Transfer duty remains a thorn in the side of property buyers, sellers and internal business restructures. Unfortunately, the Victorian Government has sent a strong signal that they won’t be doing away with it anytime soon.

Transfer duty concessions for off-the-plan contracts and new residential property in Melbourne

The threshold for the 50% off-the-plan concession for transfer duty will be increased temporarily to $1 million for home buyers who enter into eligible off-the-plan contracts from 1 July 2021 to 30 June 2023. In line with existing requirements, the property must be the principal place of residence for at least one of the purchasers.

The Victorian Government is also providing a transfer duty concession of up to 100% for the purchase of new residential property in the Melbourne local government area, where the dutiable value is up to $1 million. The Melbourne local government area spans 14 suburbs, including Flemington, Kensington, Carlton and Jolimont. For new residential property that has been unsold for less than 12 months since completion, a 50% concession will apply on contracts entered into from 1 July 2021 to 30 June 2022, whereas a 100% concession is available to new properties which have been unsold for 12 months or more since completion for contracts entered into from 21 May 2021 to 30 June 2022. The concessions do not apply to foreign purchaser additional duty.

The off-the-plan concession increase and Melbourne transfer duty concessions are aimed at supporting housing affordability for buyers and renters, especially for inner-city dwellings that have been left vacant or unsold in the wake of the COVID-19 pandemic and international border closures.

3. The introduction of ‘Windfall Gain Tax’

The most radical tax change announced in the Budget is the introduction of a ‘Windfall Gain Tax’ (WGT), which will hit developers and land holders who receive windfall gains due to property rezoning with a 50 per cent tax if the gain is worth $500,000 or more. The tax phases in from the first $100,000, and is payable on rezonings across Victoria except for rezonings:

  • to and from the Urban Growth Zone within existing Growth and Infrastructure Contribution areas; and
  • rezonings to Public Land Zones.
4. Land Tax changes

Land tax increases for high value landholdings

Land taxes will rise by 0.25% for taxable landholdings worth between $1.8m and $3m, and by 0.3% for those above $3m over four years from 1 January 2022. This is in addition to recent land tax increases such as the Foreign Land Tax Surcharge and Absentee Owner Surcharge.

These increases increase the incentive for multiple landholdings not to be aggregated together, and for main residences owned via a company or trust to be transferred to individual owner-occupiers.

Vacant residential land tax exemption for new developments

From 1 January 2022, the vacant residential land tax exemption for new developments will be extended to apply for up to two years. The Government intends this measure to support the construction sector and encourage the completion of newly constructed dwellings.

5. Support For Different Industries

The creative industries will receive additional support through a $288 million package. The package includes $121 million to support the Victorian screen industry and $79 million to support institutions like the Arts Centre Melbourne, the Geelong Arts Centre and the Melbourne Theatre Company.

The tourism sector will receive further support, including $43 million to attract business events to the state and $10 million to support the distillery industry.

The international education sector will receive $51 million to support its recovery. The money will go to an expansion of the state’s Global Education Network and offshore Study Melbourne Hubs in regions such as Southeast Asia, Latin America and Africa.

Transport infrastructure announcements

  • $986 million to build 25 X’Trapolis 2.0 trains and supporting infrastructure for the metropolitan network
  • $386 million for a new Road Safety Strategy
  • $368 million to support the delivery of 100 Next Generation Trams (previously announced), including upgrades to the Southbank Tram Depot and the construction of a new tram maintenance facility in Melbourne’s north west
  • $100 million to progress planning of targeted road upgrades, including improvements to safety and capacity at Calder Park Interchange
  • $95 million to upgrade and maintain suburban and regional roads
  • $94 million will be invested in the Melton and Wyndham Vale rail corridor to enable higher capacity trains
  • The introduction of a zero-emissions vehicle purchase subsidy.

Education and training announcements

  • Funding for up to 12,200 extra subsidised training places in TAFE
  • 4800 additional places in digital literacy and employment skills courses
  • The government will allocate $86 million to establish the Victorian Skills Authority
  • Funding for upgrades to Bendigo Kangan Institute’s Broadmeadows Campus and GOTAFE’s Archer Street Shepparton Campus
  • Three-year old children will have access to at least five hours a week of funded kindergarten places
  • $492 million to build 13 brand-new schools
  • $340 million to upgrade 52 schools
  • $218 million for a new School Mental Health Fund
  • $188 million to deliver maintenance upgrades at schools
  • $148 million to establish the new Victorian Academy of Teaching and Leadership

Health

As part of the government’s response to the Royal Commission into Victoria’s Mental Health System, it announced a $3.8 billion spend to rebuild the state’s mental health system. Key investments from this initiative include:

  • $954 million to deliver community-based care
  • $370 million to improve access to mental health beds and better acute care
  • $265 million for new local mental health services for adults
  • $196 million to support a dedicated mental health support system for infants, children and families
  • $173 million for suicide prevention and response
  • $1.3 billion to continue the State Government’s public health response to COVID-19
  • $556 million to build and expand 10 community hospitals, including at Craigieburn, Cranbourne, Phillip Island and Torquay
  • $266 million to support the work of Ambulance Victoria, with additional triage nurses, an expansion to secondary triage services and non emergency patient transfers.
  • $136 million elective surgery improvement fund
  • $100 million for new emergency department paediatric zones including at Geelong and Frankston
  • $99 million to expand the Angliss Hospital with a new in-patient unit
  • $95 million to upgrade Maryborough Hospital
  • $70 million to establish public fertility care service
  • $50 million to support establishing Victoria’s capability to manufacture mRNA vaccines

Other major announcements

  • Revitalising Melbourne’s CBD with $107 million package that includes $7.4 million for a new voucher scheme to encourage people to spend in the CBD
  • $179 million to deliver the first stage of the transformation of the former General Motors Holden site at Fishermans Bend into an innovation hub, including housing the University of Melbourne’s School of Engineering
  • Victoria’s courts will receive $210 million for measures aimed at increasing efficiency and clearing case backlogs
  • $194 million for services that prevent homelessness, including a focus on people who need help in the rental market through the Private Rental Assistance Program
  • $138.8 million over seven years to replace CFA radio equipment with modern digital technology.

This document contains general advice only and is prepared without taking into account your particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should speak to a licensed financial advisor who should assess its relevance to your individual circumstances.  While The Field Group believes the information is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the corporations Act 2001.

About the author

The Field Group is composed of experts in the fields of Xero accounting, personal tax, self-managed superannuation, audit services, business services, bookkeeping, bench marking, business structuring and ATO Compliance. Based in Melbourne, The Field Group are also able to work with clients all over Australia and are the market leader for accounting services in the Ringwood, Croydon, Chirnside Park, Lilydale and general Melbourne eastern suburb region.

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