The Victorian Government has announced substantial rate increases for stamp duty and land tax payable on the purchase and holding of Victorian real estate by foreign investors.

In particular:

  1. the additional stamp duty payable on acquisitions of residential land by foreign purchasers (Foreign Purchaser Additional Duty) will increase from 3% to 7% for all contracts signed on or after 1 July 2016; and
  2. the land tax surcharge rate payable by absentee persons who hold Victorian land (Absentee Owner Land Tax Surcharge) will increase from 0.5% to 1.5% for the 2017 land tax year onwards.

We have previously summarised the main aspects of the existing Foreign Purchaser Additional Duty and the Absentee Owner Land Tax Surcharge, and the guidelines which provide the Victorian Treasurer with a discretion to exempt certain entities from Foreign Purchaser Additional Duty and the Absentee Owner Land Tax Surcharge.

Stamp duty rate for foreign purchasers of Victorian residential land will be as high as 12.5% on and from 1 July 2016

For transfers made pursuant to contracts entered into on or after 1 July 2016, the increased Foreign Purchaser Additional Duty will result in the Victorian stamp duty payable on acquisitions of residential land by foreign purchasers being as high as 12.5% (based on the maximum ‘standard’ transfer duty rate of 5.5% plus the 7% Foreign Purchaser Additional Duty).

For acquisitions made pursuant to contracts entered into before 1 July 2016, the rate of Foreign Purchaser Additional Duty will be the existing rate of 3%, rather than the new rate of 7%. There is, therefore, a small window of opportunity for foreign purchasers of residential land to pay the lower rate of Foreign Purchaser Additional Duty by entering into the relevant contract of sale before 1 July 2016.

1.5% Absentee Owner Land Tax Surcharge applies to Victorian land held by absentee persons for the 2017 land tax year

The Absentee Owner Land Tax Surcharge which first applied to the 2016 land tax year, applies to Victorian real estate owned by absentee persons.

An absentee person includes:

  1. a foreign natural person;
  2. a foreign incorporated or foreign controlled company; and
  3. a trust which has beneficiaries who are foreign natural persons or foreign companies.

Importantly, while the Foreign Purchaser Additional Duty only applies to residential land, the Absentee Owner Land Tax Surcharge applies to all types of land.

Further, absentee persons who hold Victorian land have certain disclosure and notification obligations to the State Revenue Office in respect of their Victorian land.

Who is affected by these changes?

The increase in Foreign Purchaser Additional Duty will affect foreign investors who acquire Victorian residential land.

The increase in the Absentee Owner Land Tax Surcharge will affect all absentee persons who hold Victorian real estate (not just residential land).

What do you need to do?

Foreign investors looking to acquire Victorian residential land and absentee persons who hold Victorian real estate should seek advice on whether they are liable to pay the Foreign Purchaser Additional Duty or the Absentee Owner Land Tax Surcharge.

The KWM tax team can assist with determining:

  • whether an entity is a foreign purchaser or absentee person for the purposes of the Victorian stamp duty and land tax provisions;
  • whether any exemptions may be available; and
  • what notification requirements may apply.