31st May 2021 | Tax
The big taxing and spending Victorian Budget forecasts strong economic growth of 6.5% in 2021-22.
The Budget invests a total of $29.2 billion in output initiatives and $19.8 billion in capital investments, the largest capital program in the State’s history.
Major investments over the next four years include:
- $3.8 billion to transform the State’s mental health system;
- $3.7 billion to meet the demand for hospital services;
- $3.5 billion for education programs to support schools and teacher professional development;
- $3.2 billion for public transport services and infrastructure;
- $1.3 billion to continue the State’s public health response to the pandemic; and
- $384 million for the skills sector, including vocational education and training
To help fund the costs of the State’s recovery and budget repair, big businesses will pay:
- a new mental health levy on businesses with over $10 million in national payrolls from 1 January 2022;
- a new premium stamp duty rate on property transactions over $2 million from 1 July 2021;
- a new windfall gains tax on gains over $500 million on rezoned land from 1 July 2022; and
- increased land tax rates on high-value landholdings from 1 January 2022.
A fiscal deficit of $11.6 billion is forecast for 2021-22, reducing to $2.1 billion over the forward estimates.
Net debt is estimated to rise to $102.1 billion in 2021-22 and increase to $156.3 billion by 2024-25.
State revenue initiatives
New mental health and wellbeing levy
The Budget implements a recommendation of the Royal Commission into Victoria’s Mental Health System to introduce a new revenue mechanism for the provision of operational funding for mental health services.
The Mental Health and Wellbeing Levy will begin on 1 January 2022. It will be implemented as a payroll tax surcharge on wages paid in Victoria by businesses with national payrolls over $10 million a year.
A rate of 0.5 per cent will apply for businesses with national payrolls above $10 million, and businesses with national payrolls above $100 million will pay an additional 0.5 per cent.
The surcharge rates will be paid on the Victorian share of wages above the relevant threshold. Existing payroll tax exemptions for private schools, hospitals, charities, local councils, and wages paid for parental and volunteer leave will apply for the Levy.
The Government will legislate that revenue from this surcharge will be spent on mental health services, supporting a substantial increase in investment in Victoria’s mental health system.
New premium stamp duty on high-value properties
A new land transfer duty threshold for high‑value property transactions will be introduced and apply to contracts entered into from 1 July 2021. For property transactions with a dutiable value above $2 million, the land transfer duty payable will increase to $110, 000 plus 6.5% of the dutiable value over $2 million.
Windfall gains tax for high-value landholdings
From 1 July 2022, a tax will apply to large windfall gains associated with planning decisions to rezone land, in an effort to ensure that developers and landholders who benefit from planning decisions pay their share.
The total value uplift from a rezoning decision will be taxed at 50% for windfalls above $500 000, with the tax phasing in from $100 000 – ensuring the vast majority of land holders will not be affected.
The tax is payable on rezonings across Victoria except on rezonings to and from the Urban Growth Zone within existing Growth and Infrastructure Contribution areas, and rezonings to Public Land Zones. The tax applies to rezonings between zone types rather than between zone sub-categories.
Increased land tax rates for high-value landholdings
From 1 January 2022, the land tax rate for taxpayers with larger property holdings will increase by:
- 25% for taxable landholdings above $1.8 million; and
- 3% for taxable landholdings above $3 million.
The increased tax-free threshold for land tax
From 1 January 2022, the tax-free threshold for general land tax rates will increase from $250,000 to $300,000. This means for land not held on trust, land tax will only be payable if the total taxable value of Victorian land is equal to or exceeds $300 000. The trust rate scale will remain unchanged.
This initiative will benefit an estimated 61 000 taxpayers with taxable holdings below $300 000.
Removal of land tax exemption for private gender-exclusive clubs
From 1 January 2022, private gender-exclusive clubs will no longer be eligible for the land tax exemption for societies, clubs or associations. This initiative is expected to result in increased tax payable from private gender-exclusive clubs with high-value landholdings that currently receive a land tax exemption.
Increased wagering and betting tax
Wagering and betting tax will increase from 8% to 10% of net wagering revenue from 1 July 2021. This change will bring Victoria into line with the rate that applies in New South Wales and remain below the rate that applies in other states.
Point of consumption framework extended to keno tax
The Government will extend the point of consumption framework to keno tax from 15 April 2022, requiring all licensed keno service providers to pay tax on expenditure of customers located in Victoria, regardless of where the service provider is located or licensed, at the prevailing rate.
Increased penalty unit value
Following a freeze in 2020-21, the penalty unit value will increase by 10% from 1 July 2021. The price increases apply to traffic infringement fines and court‑imposed penalties. This measure will contribute to budget repair while supporting community safety objectives.
Economic Support and Recovery
Bringing forward increases in the payroll tax-free threshold to $700 000
To support Victorian jobs the Government will bring forward increases in the payroll tax-free threshold, which will increase from $650,000 to $700,000 from 1 July 2021.
Approximately 500 businesses will no longer be liable for payroll tax in 2021-22 due to the increase in the tax-free threshold and a further 42,000 businesses will pay less tax.
Bringing forward the regional employer payroll tax rate of 1.2125 per cent
To support regional Victorian jobs the Government will bring forward reductions in the regional employer rate of payroll tax. The regional employer rate will reduce from 2.02% to 1.2125% from 1 July 2021. Approximately 4,000 regional businesses will benefit from the reduced regional employer rate.
Temporary increase in the eligibility threshold for the off-the-plan duty concession
For contracts entered into from 1 July 2021 to 30 June 2023, the threshold for the off‑the‑plan concession for land transfer duty will increase to $1 million for all home buyers. The property must be the principal place of residence for at least one of the purchasers.
To be eligible for the off-the-plan duty concession, the dutiable value of the property (the contract price minus the construction costs incurred on or after the contract date) can be up to $1 million.
Temporary stamp duty concession for new residential property within the Melbourne local government area
A concession of up to 100% of the land transfer duty payable will be provided on the purchase of new residential property, in the Melbourne local government area, with a dutiable value of up to $1 million.
For new residential property that has been unsold for less than 12 months since completion, a 50% concession will be provided. Purchases of a new property that has been unsold for 12 months or more since completion will be exempt from duty. The exemption/concession will apply to the duty otherwise payable (excluding any foreign purchaser additional duty).
The 50% concession will apply to contracts entered into from 1 July 2021 to 30 June 2022, and the 100% concession will apply to contracts entered into from 21 May 2021 to 30 June 2022 (inclusive).
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. This measure provides an exemption for at least two tax years following the completion of a newly constructed dwelling before the vacant residential land tax may apply.
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