There are some increased taxes and duties in Victoria's budget, but also some higher thresholds and extended exemptions.
Foreign buyers of residential property and absentee landlords will face higher costs under tax and duty changes announced in the 2016/17 Victorian budget on 27 April 2016:
- Land transfer duty surcharge on foreign buyers of residential property will be increased from 3% to 7% on the greater of the purchase price or the market value of the property in addition to any other stamp duty payable. This means the highest marginal rate of land transfer duty for foreign purchasers of residential property will be 12.5%. The new rate applies to contracts entered into or after 1 July 2016.
- The absentee landowner surcharge will increase from 0.5% to 1.5% for the 2017 land tax year. This means the highest marginal rate of land tax for absentee landowners will be 3.75%.
- Funds will be invested in a State Revenue Office Land Tax Compliance Program (covering both stamp duty and land tax). The State Revenue Office will receive additional funding to establish and expand compliance programs involving the land tax principal place of residence exemption, foreign purchaser additional duty, absentee owner surcharge, undeclared changes in the composition of business partnerships that own land, and land held in undeclared trusts.
- The payroll tax threshold will be lifted from $550,000 to $650,000 progressively over 4 years ($25,000 each year), commencing on 1 July 2016. The threshold of $650,000 will be reached in 2019-20.
- A payroll tax exemption will be available for wages paid by businesses to a displaced apprentice or trainee from 1 July 2016.
- Land tax exemption for primary production land in an urban zone will be extended to land owned by certain family superannuation trusts.
Discretionary exemptions for foreigners
Although the increase in land transfer duty surcharge for foreign purchasers of residential property is quite significant, foreign purchasers of residential property should be aware that there is a discretionary exemption from the additional duty which has been available since the introduction of the additional 3% duty for foreign purchasers on 1 July 2015. So far there is no indication that this exemption will not be made available to the new 7% rate of duty for foreign purchasers. Based on the gazetted guidelines, the exemption is intended to apply to corporations and trusts that are Australian based (albeit foreign owned) and whose commercial activities add to the supply of housing stock in Victoria (either through new developments or through re-development, where that development is primarily residential). As the exemption is discretionary, taxpayers should seek to apply for the exemption prior to entering into any transactions.
A similar discretionary exemption is available for the land tax surcharge imposed on absentee corporations who are landowners. Based on the gazetted guidelines, the exemption in the land tax context is intended to apply to corporations which conduct commercial operations in Australia and whose commercial activities make a strong and positive contribution to the Victorian economy and community by engaging local labour and utilising local materials and services.
A different take on partnerships?
It is interesting that the State Revenue Office Land Tax Compliance Program mentions undeclared changes in the composition of business partnerships that own land. The newly announced focus on undeclared changes in business partnerships that own land suggest that there may be a change in the stance of the State Revenue Office on a type of transaction which previously would have been thought not to trigger any duty implications. The Victorian duties legislation is and remains the only duties legislation which is silent on the duty treatment of dealings in partnership interests where the partnership property includes land. Nor does the State Revenue Office website give any guidance on the duty treatment of dealings in such partnership interests. Taxpayers investing in Victoria using partnership structures should be wary.