Budgets for 2015-16 have been handed down by the governments of Victoria, Western Australia, Tasmania, the Northern Territory and the Australian Capital Territory (ACT). These budgets contain a number of important state revenue amendments – most notably, Victoria’s proposed introduction of transfer duty and land tax surcharges on foreign purchasers or owners of residential land. This will affect foreign investors, foreign trusts and companies which are majority foreign owned, but exemptions may be available.
The Northern Territory will abolish life insurance duty and change the basis on which it charges general insurance duty, and the ACT is continuing its programme of progressive abolition of conveyancing duty and insurance duty. Key amendments are summarised below.
The Victorian government announced changes to stamp duty and payroll tax laws in the 2015-16 Budget. The changes are set out in the State Taxation Acts Amendment Bill 20151 which has passed the Legislative Assembly and is awaiting Legislative Council approval.
Duty surcharge on foreign purchasers of residential property
A 3% duty surcharge will be imposed on foreign purchasers of Victorian residential property in relation to dutiable transactions entered into, or (in relation to landholder duty) 'relevant acquisitions' made, on or after 1 July 2015.
The Government appears to have ignored requests by the property industry to clarify, by appropriate changes to the amending Act, that transfers taking place on or after 1 July 2015 to complete pre-1 July 2015 contracts will not attract the surcharge. However, consistent with the budget announcement, the OSR’s guidelines2 reflect the position that no surcharge is payable in those circumstances.
For the purposes of the surcharge, 'foreign purchaser' includes:
- an individual who is not an Australian resident or a holder of a special visa,
- a company which is majority foreign owned or controlled, or which is incorporated outside Australia,
- a trust in which a foreign individual, corporation or trust has more than 50% beneficial interest, or a discretionary trust in which more than 50% of the trust capital could possibly be distributed to such an individual, corporation or trust, and
- any person whom the Commissioner determines has a ‘controlling interest’ in a corporation, or a substantial interest in a trust (which depends on the Commissioner being satisfied that the person has capacity to influence the outcome of financial/operating decisions of the corporation, or the administration and conduct of the trust).
The surcharge applies to the acquisition of property:
- which can lawfully be used as a residence, or
- on which the foreign purchaser intends to affix a primarily residential building, or
- in relation to which, subsequent to the purchase, the foreign purchaser forms an intention to affix a primarily residential building to the land (in such a case, a statement of intention must be lodged with the Commissioner within 14 days of the formation of the intention).
Foreign purchasers will not be able to rely on exemptions under Part 5 of the Duties Act in relation to the surcharge.
However, the Treasurer may exempt a foreign purchaser which is a corporation or trust from paying the surcharge on a discretionary basis, if the Treasurer is satisfied that a foreign person with a controlling/substantial interest in the corporation of trust 'should not be taken to have that interest'.
The State Revenue Office has issued guidelines for the exercise of this discretion, which state that “the persons who are intended to be exempted from the non-resident duty surcharge from 1 July 2015 are those whose commercial activities add to the supply of housing stock in Victoria (either through new developments or redevelopment, where such development is primarily residential)”. Large foreign owned or controlled property developers may therefore benefit from the discretion.
The guidelines indicate that the following matters (among others) will be taken in account:
- The nature or degree of foreign ownership or control of the corporation or trust (including remoteness of holding, and whether rights are limited),
- The degree of practical influence and rights of the foreign person (including level of involvement and whether the investment was solely acquired as an income stream),
- Practices and behaviour of the foreign person affecting the corporation or trust (including relationships with persons involved in day-to-day operations, and whether directors or trustees are required to follow the foreign person), and
- Impact on the Victorian economy, including: the level of investment associated with the acquisition and if it will increase Victorian housing stock; competition issues; overall effect on the community, use of Australian contractors, and degree of Australian participation in the foreign corporation or trust; location of central control of the foreign corporation or trust and whether decisions can be made independently of that central control; FIRB approval/conditions; and transparency and corporate governance of the corporation or trust.
Land Tax surcharge on 'absentee' foreign owners
A land tax surcharge of 0.5% will be imposed on 'absentee owners' from the 2016 land tax year.
An absentee owner is defined in similar terms to a 'foreign purchaser' under the Duties Act. The Treasurer also has a discretion, similar to that pertaining to the stamp duty surcharge, to exempt an absentee owner from the surcharge. The SRO guidelines for this exemption3 and the amending Bill4 are available for viewing.
The following revenue amendments,5 announced as part of the 2015-16 State Budget, have now passed into law:
- Duties: the duty concession for a transfer to the trustee of a superannuation fund now extends to the custodian for a superannuation fund, with effect from 27 March 2015.
- Payroll Tax: the benefit of the tax-free threshold will be phased out for employers and employer groups with annual taxable wages of $800,000 to $7.5 million, and payroll tax will be payable on the entirety of payrolls over $7.5 million from 2015-16.
- Land Tax: anti-avoidance provisions have been strengthened with respect to the practice of disaggregating land for land tax avoidance.
Australian Capital Territory
The ACT Budget confirms that the government will continue to progressively abolish conveyancing duty and insurance duty as previously announced.
The reduced schedule of conveyancing duty6 applies to dutiable transactions entered into as of 3 June 2015 and includes a reduced flat rate of 5.17% for all properties with a sale value over $1.455m.
Insurance duty rates are expected to be reduced from 4% on general insurance and 2% (of first year’s premiums) on life insurance to 2% on general and 1% on life, from 1 July 2015. However, these changes are not reflected in the latest rates Determination which took effect on 3 July 2015.
For land tax, the fixed charge component has increased to $945.
Under the 2015-16 Budget, life insurance duty in the Northern Territory will be abolished in favour of an approach similar to that currently in force in Victoria and Western Australia. Life insurance will no longer be dutiable, but life insurance riders which insure contingencies other than death or terminal illness will become dutiable on an ongoing basis at general insurance rates.
The new rules7 apply to life insurance and riders entered into on or after 1 July 2015. Life insurance policies entered into prior to that date will be grandfathered under the current provisions, except for group policies which admit new members after 1 July 2015.
The duty exemption for medical insurance has also been amended to clarify that healthcare policies for overseas students and visa holders are exempt.
These changes are contained in the Revenue and Other Legislation Amendment Bill 2015 which has been passed by the Legislative Assembly and is awaiting assent.
The payroll tax concession for apprentices will be abolished as 1 July 2015. Duty concessions for seniors and carers will be extended while duty exemptions for charities are being tightened.
The Tasmanian Budget for 2015-16 has maintained the status quo from a revenue perspective, with minor adjustment to first home buyer concessions and the continuation of the reduction in insurance duty rates for Motor Accidents Insurance Board premiums.
If you would like advice about how any of the changes discussed above will affect your business, please contact Richard Giannone or Jinny Chaimungkalanont.