The Victorian Government has announced that ‘foreign purchasers’ will be liable for duty at a rate of up to 12.5% for purchases of Victorian residential property from 1 July 2016, and ‘absentee owners’ will be liable for land tax at rates of up to 3.75% commencing with the 2017 land tax year.
‘Foreign purchasers’ and ‘absentee owners’ that own or are considering purchasing Victorian land should consider whether they qualify for an exemption.
Additionally, ‘absentee owners’ that have not yet made the necessary notification to the Commissioner of State Revenue should attend to this notification as soon as possible to avoid penalties.
Announced Increases to Surcharges
The Victorian Government introduced a ‘foreign purchaser’ duty surcharge on acquisitions of residential property and an ‘absentee owner’ land tax surcharge as part of the FY16 State Budget.
The Victorian Government announced that they propose to increase the surcharge rates so that:
- Foreign purchasers will pay a 7% surcharge (up from 3%) for acquisitions of residential property in Victoria. This surcharge means that foreign purchasers who sign a contract on or after 1 July 2016 to purchase Victorian residential property will pay duty of 12.5% of the dutiable value of the property (for property exceeding $960,000).
- An annual land tax surcharge of 1.5 % (up from 0.5%) will apply to Victorian land that is owned by an absentee owner. From the 2017 land tax year (based on land owned on 31 December 2016), the top rate of land tax (including the surcharge) for absentee owners will be 3.75% (applicable to taxable land values of $3,000,000 and more).
Broadly, an ‘absentee owner’ and a ‘foreign purchaser’ can include a corporation or trust in which there is, directly or indirectly, a foreign controlling interest, and certain individuals who are not Australian citizens and don't hold certain types of visas.
The Good News - Opportunity to Apply for an Exemption
The good news is that the exemptions that were introduced with the surcharges last year are likely to remain. Once the surcharges increase, these exemptions will become even more critical for foreign purchasers and absentee owners. For example:
- for every $5 million of property value, an exemption from the duty surcharge would represent a saving of $350,000,
- for every $5 million of unimproved land value, an exemption from the land tax surcharge would represent an annual saving of $75,000.
In very broad terms, the opportunity for an exemption may be available for foreign purchasers and/or absentee owners that conduct commercial operations in Australia, make a strong and positive contribution to the Victorian economy, and have local day-to-day management and operations.
Foreign purchasers and absentee owners that own or are considering purchasing Victorian land should note these increased surcharges and consider whether they qualify for an exemption at the earliest opportunity.
Any absentee owners that have not yet notified the Commissioner that they are absentee owners should also attend to this notification as soon as possible (as this should have already been done). Penalties may apply for failing to notify the Commissioner within the required timeframe.