From the 1 July 2016, there will be an increase in stamp duty for foreign buyers from 3% to 7% in Victoria.

There will also be an increase in the land tax surcharge for absentee landlords from 0.5% to 1.5% for the 2016/2017 tax period.

Who is a foreign person?

A foreign person is anyone except

  • An Australian citizen
  • An Australian permanent resident
  • A New Zealand citizen with a temporary Australian Visa

When will the new stamp duty apply?

The new rate will apply to contracts entered into or after 1 July 2016.

The increased rate may apply if you are nominated as a purchaser on or after 1 July 2016 even if the contract was entered into prior to 1 July 2016.

How will the stamp duty apply to foreign buyers?

The 7% stamp duty charge will apply on either the purchase price or the market value of the property, whichever is greater. It will apply in addition to any other stamp duty payable.

This means the marginal rate of land transfer duty tax for foreign purchasers of residential property will be 12.5%.

Will the stamp duty apply to property developers?

While the stamp duty surcharge only applies to acquisition of residential property, residential property includes land on which a person intends to build a residential building. Residential property developers should be aware of the stamp duty surcharge and account for it during planning.

What is the duty payable for off the plan acquisitions?

The stamp duty surcharge does not appear to reduce by any concessions, including off the plan concession. The 7% surcharge will be applied to the full purchase price of the apartment if it is entered after 1 July 2016.

Are there exemptions?

The legislation introducing these changes has not been announced, however the government has indicated that only the surcharge rate will be changed and the remainder of the legislation which governs the surcharge introduced last year will remain the same.

Thus, some exemptions that may apply according to gazette guidelines are:

  • Corporations and trusts which are Australian based with foreign owners may be available to seek exemption from stamp duty if they can prove that their commercial activity will increase supply of housing stocks in Victoria. This may interest developers who develop or re-develop residential property.
  • Corporations who conduct commercial operations in Australia and whose commercial activities make a strong and positive contribution to the Victorian economy and community by hiring locals and using local materials and services may be able to make a strong case for exemption to the tax.

However, developers should be aware that there is no certainty that this exemption will be made available under the new 7% stamp duty in 2016. They should seek advice before embarking on any projects. In any case, all exemptions will have to be sought prior to entering any transactions.

 

Recommended Course of Action

  • Foreign buyers purchasing off the plan should consider entering into contracts of sale purchase before 1 July 2016 to reduce tax payable
  • Corporations and trusts looking to develop land in Australia for residential property should not rely on exemption. It is important to consider whether you can enter a contract of sale to 1 July 2016 and seek advice as to whether exemptions apply

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Please contact Verity Law for further advice.