STATE TAXATION ACTS AMENDMENT BILL 2019
Mr PALLAS (Werribee) (10:08:56): I move: That this bill be now read a second time. I ask that my second-reading speech be incorporated into Hansard.
I am pleased to introduce this Bill, which amends the Duties Act 2000, Land Tax Act 2005 and Payroll Tax Act 2007, and which makes important amendments to the Valuation of Land Act 1960. This Bill delivers 2019–20 Budget initiatives that will support all Victorians and reduce costs for Victorian businesses. The Bill also amends a number of laws to ensure they support fair and effective revenue administration.
The Bill implements a number of Budget measures that will improve the fairness and sustainability of Victoria’s tax system, as well as targeted measures to support Victorian businesses in achieving greater efficiencies and creating jobs. The Government recognises how important it is to allow businesses to grow and create more jobs. In the 2016–17 Budget the Government introduced a plan to progressively raise the $550,000 tax free threshold for payroll tax by $25,000 each year until 2019–20. This plan was brought forward in the 2017–18 Budget, such that the threshold reached $625,000 in 2017–18 and $650,000 in 2018–19. This Bill will further increase the tax free threshold to $675,000 from 1 July 2021 and $700,000 from 1 July 2022.
Every business that pays payroll tax in Victoria will benefit from these measures.
It is estimated that this measure will reduce the number of businesses paying payroll tax in Victoria by about 700 in 2021–22 and a further 700 in 2022–23, and provide payroll tax relief of approximately $87 million over the budget and forward estimates period. The Bill will reduce the payroll tax rate paid by regional Victorian businesses from 2.425 per cent to 1.2125 per cent by 1 July 2022, with reductions of around 0.4 percentage points per year from 1 July 2020. The Government introduced the regional rate in the 2017–18 Budget at 3.65 per cent—75 per cent of the base payroll tax rate of 4.85 per cent—to encourage businesses to establish operations in, or relocate to, regional locations. The Government reduced the regional rate further to 50 per cent of the base rate in the 2018–19 Budget. By 1 July 2022 the regional payroll tax rate will equate to 25 per cent of the base rate.
The Bill also expands the definition of regional employer for the purpose of the reduced rate of payroll tax. One of the conditions to be considered a ‘regional employer’ includes that the registered business address is located in regional Victoria (if the employer has an ABN) or the principal place of business is in regional Victoria. The Bill removes this condition, meaning that any employer that meets the more critical test of paying 85 per cent or more of its total taxable wages to regional employees will be eligible for the reduced rate of payroll tax.
Accordingly, the regional payroll tax rate will now be available to a larger number of employers, including those that may be headquartered in Melbourne or outside Victoria, but who primarily employ regional employees.
Combined, these changes are expected to provide payroll tax relief of approximately $173 million over the budget and forward estimates period.
To provide further support to regional businesses, the Bill will provide a land transfer duty concession to commercial and industrial property transactions in regional Victoria. The concession will apply to contracts entered into from 1 July 2019 as a 10 per cent reduction in the duty otherwise payable for an eligible dutiable transaction. The reduction will scale up by 10 percentage points each year following 2019–20, to provide a full 50 per cent discount from 1 July 2023. The commercial or industrial status of a property will be determined by reference to the Australian Valuation Property Classification Codes. Property that is intended to be used solely or primarily for commercial, industrial, or extractive industry uses will qualify for the concession, regardless of its previous use—although to ensure the concession is directed to genuine regional businesses, purchasers will be required to use the land solely or primarily for commercial or industrial purposes for a continuous period of at least 12 months, commencing within 2 years of the transfer. This measure is estimated to provide duty relief of approximately $69 million over the budget and forward estimates period.
The Bill will expand the payroll tax exemption available to employees on maternity and adoption leave to cover any type of paid parental leave from 1 July 2019. This forms part of the Government’s package of initiatives to support all new parents across Victoria. A payroll tax exemption is currently available for wages paid to a female employee taking maternity leave in connection with her pregnancy or birth of a child. This exemption will be expanded to cover up to 14 weeks’ parental leave paid to the primary or secondary caregiver of a child, regardless of the caregiver’s gender, encouraging employers to offer more parental leave to their employees. This will give parents a greater opportunity to spend time with their newborn child at such an important time for their family. This measure is expected to cost approximately $7 million over the budget forward estimates period. The Bill reforms the corporate reconstruction duty exemption to encourage the adoption of economically efficient corporate structures and promote industry and commerce in Victoria. This includes removing the current three-year post association requirement, which operates as a significant constraint to efficient business structuring. Eligibility will also be expanded to allow a duty concession on subsequent consolidations.
The Bill will also replace the current duty exemption with a concession. Eligible transactions will pay concessional duty equal to 10 per cent of the amount otherwise payable, including foreign purchaser additional duty if it applies. This will allow corporate restructures and consolidations for a relatively low cost to businesses while maintaining integrity in the tax system and encouraging restructures that improve business efficiency. The measure is expected to generate around $144 million in duty revenue over the budget and forward estimates period.
The Bill increases the foreign purchaser additional duty rate from 7 per cent to 8 per cent and the absentee owner land tax surcharge rate from 1.5 per cent to 2 per cent. These changes align Victoria’s surcharges on foreign property with the rates in New South Wales. These modest increases will generate additional duty revenue of around $130 million and land tax revenue of around $196 million over the budget and forward estimates. This measure ensures that foreign property buyers and owners continue to make a fair contribution towards infrastructure projects in Victoria, to the ultimate benefit of all Victorians.
The Bill will introduce two additional ‘super-luxury’ brackets of motor vehicle duty for all passenger vehicles valued at above $100,000. Consistent with previous changes made in the 2017–18 Budget, the rates of duty for used passenger vehicles will also be brought into line with new passenger vehicles of similar value above the existing luxury car threshold. This measure will generate approximately $246 million over the forward estimates period to help deliver the Government’s investment in roads and transport infrastructure. The higher tax brackets will not apply to green cars and primary producer passenger cars valued at above the luxury car tax threshold. Green cars include passenger vehicles with below-average carbon dioxide emissions, including electric vehicles, hybrid vehicles and low-emission diesel or petrol vehicles.
Primary producers will also benefit from the concessional rate when acquiring passenger vehicles for the purposes of their business. This measure does not impact non-passenger vehicles—in particular, utes, dual cabs, panel vans, motorcycles and heavy vehicles—which already pay a reduced rate of motor vehicle duty compared to passenger vehicles. The Bill will introduce an exemption from motor vehicle duty for licensed motor car traders that register service demonstrator vehicles in the course of a retail business. Licensed motor car traders that carry on a business of retail currently do not pay motor vehicle duty on their trading stock or demonstrator fleet. Currently, vehicles that are offered to customers while their own vehicle is being serviced with the purpose of selling a vehicle of the same class—known as service demonstrator vehicles—are not eligible, because they are not solely or predominantly used as demonstrator vehicles. The Bill introduces a specific exemption for these vehicles to provide assurance and support to members of the retail automotive industry that use service demonstrator vehicles in their business. This measure is expected to reduce motor vehicle duty payable by approximately $12 million over the budget and forward estimates period.
The Bill removes the land tax exemption for land contiguous to a principal place of residence for land in metropolitan areas. Currently the principal place of residence exemption extends to contiguous land or lands owned by the same owner on a separate title, where the contiguous land enhances the principal place of residence land, is used solely for the private benefit and enjoyment of the owner and does not contain a separate residence. Examples are adjoining land used as a backyard, garden, shedding, a swimming pool or a tennis court. Removing this exemption from metropolitan areas will discourage land banking within metropolitan Melbourne and thereby promote the efficient use of urban land. Owners in metropolitan areas have the option of consolidating titles with their principal place of residence land so that an exemption can continue to apply to the consolidated land. The exemption will also continue to apply to units or apartments in metropolitan areas where the contiguous land is a strata-titled car park or storage facility located on a separate title but in the same complex. This measure is expected to generate revenue of around $43 million over the budget forward estimates period.
The Bill responds to the recent Victorian Civil and Administrative Tribunal decision in ISPT Pty Ltd v Melbourne CC  VCAT 1647 (known as the ‘GPO case’). Disputes over the valuation of heritage registered properties have led to significant litigation costs for the Valuer-General and municipal councils. As the recent GPO case has demonstrated, these disputes have resulted in unrealistic outcomes such as site values of $1. It is not fair to the rest of the Victorian community that large landowners avoid the payment of land tax on valuable heritage-registered properties due to this anomaly in the valuation regime. This Bill will bring much needed clarity to the valuation of these properties by repealing the specific assumptions that currently must be made when valuing heritage-registered property. This will enable valuers to determine site values for heritage-registered property taking into account its highest and best use on a consistent basis to all other properties. The amendments will ensure that any objections, reviews and appeals to the site values issued for heritage registered properties against the 2018 valuations onwards will be considered in light of the amendments being made by this Bill. This is necessary to ensure consistent treatment of all landowners and to protect the substantial land tax revenue at risk. The Bill does not remove the normal rights of taxpayers to object to site valuations for reasons other than those related to the specific heritage valuation provisions being repealed.
General taxation amendments
The Bill makes a number of amendments to Victoria’s laws that will clarify their operation, correct drafting defects, and remove anomalies that disadvantage taxpayers. The Bill will make a technical amendment to the definition of public unit trust scheme under the landholder duty provisions. The definition currently excludes wholesale unit trust schemes and schemes that were at any time eligible to register as a wholesale unit trust scheme as being a public unit trust scheme. Unit trusts affected by this restriction are deemed to be private unit trust schemes, meaning they cannot take advantage of the beneficial tax treatment afforded to public unit trust schemes. The Bill will repeal this anomalous and unnecessary restriction, bringing Victoria into line with other jurisdictions.
The Bill supports the collection of land transfer duty on fixtures acquired independently of the underlying land. A fixture is considered tangible property attached to land such that it becomes part of the land. The Duties Act 2000 operates to charge duty on the transfer of land. Accordingly, duty is charged on fixtures when they are transferred together with the underlying land and there is equally a legal basis to also charge duty when fixtures are transferred or sold independently of the underlying land. However, there is a risk that this latter approach allows for duty to be imposed on transfer of fixtures owned by small businesses. It is not the Government’s intention to impose duty in these circumstances. Accordingly, the Bill will implement a value threshold that prevents duty from being imposed on the acquisition of fixtures that are less than $2 million in overall value. This will apply where the fixtures are the only dutiable property being acquired under an arrangement.
Further, duty will be phased in between values of $2 million and $3 million, meaning that full duty will only apply when the value of fixtures acquired under the arrangement is $3 million or more. These amendments will provide much needed clarity and certainty on how land transfer duty applies to fixtures in Victoria, without impacting on small business.
The Bill also amends the duty provisions regarding the acquisition of economic entitlements in response to the Victorian Supreme Court case of BPG Caulfield Village Pty Ltd v CSR  VSC 172 (BPG). An economic entitlement is an entitlement to participate in the economic benefits of land held by another party: for example, an entitlement to the proceeds of sale, income, or rent of that land. The Court in the BPG case found among other things, that an economic entitlement could not be acquired in circumstances where the taxpayer only acquired an economic entitlement to some, but not all, of the land holdings of a landholder. The decision has resulted in ineffective provisions that are easily manipulated to avoid the application of duty.
The Bill addresses these technical issues and gaps, consistent with the findings by the Court, by inserting independent provisions that apply duty to the acquisition of economic entitlements outside the landholder regime. The amendments will make it unnecessary for the economic benefit to relate to all the lands of the landholder for it to be an economic entitlement—rather, it will be sufficient if the benefit relates to some of the lands of the landholder (i.e. the lands to which the economic entitlement relates). This will ensure the policy intent of the economic entitlement provisions is restored consistent with when they were introduced in 2012.
The passage of this bill will continue the Andrews Labor Government’s record of tax reform, including closing tax loopholes, promoting efficiency and ensuring a fairer tax system.
I commend the Bill to the house.