The Victorian Government has introduced a Bill to implement the 3% stamp duty surcharge on foreign purchasers of residential property, announced in the 2015/2016 State Budget.
Timing and retrospective effect
If passed in its current form, the changes will affect:
- land transfers which occur on or after 1 July 2015, even if contracts were entered into before that date (i.e. the change in law will have retrospective effect despite announcements suggesting otherwise),
- acquisitions of interest in landholders will occur on or after 1 July 2015, but there is grandfathering of contracts or arrangements entered into before that date.
How does the surcharge apply?
An additional 3% stamp duty surcharge applies (in addition to the existing 5.5% duty) to a transfer of residential property to a foreign purchaser.
For example, the surcharge applies to both the following transactions:
- a foreign developer acquires land that the developer intends to develop into residential land,
- the developer develops the property (builds an apartment), then sells developed residential lots (the apartments) to foreign purchasers.
Generally, stamp duty concessions do not apply to a foreign purchaser in respect of the 3% additional duty. This includes the off-the plan concession, the partition concession, and the trustee concessions.
The 3% surcharge will also apply to a landholder duty acquisition by a foreign purchaser in an entity holding residential property.
The provisions apply to:
- a foreign natural person,
- a corporation incorporated outside Australia or in which a foreign person has a controlling interest (more than 50% voting power or potential voting power, a concept taken from the Foreign Acquisitions and Takeovers Act, or more than 50% shareholding, or as determined by the Commissioner under a broadly defined control test),
- a trust in which a foreign person has a substantial interest (more than 50% of capital entitlements, or as determined by the Commissioner under a broadly defined control test).
The Treasurer has power to determine that a person does not have a controlling or substantial interest.
The provisions apply to 'residential property', defined as land in Victoria on which there is a building, or on which a foreign purchaser intends to build a building, designed and constructed solely or primarily for residential purposes and which may lawfully be used as a residence.
Land tax changes
A 0.5% land tax surcharge will apply to land owned by an 'absentee owner', from the 2016 land tax year. An absentee owner is, broadly, a foreign natural person who does not ordinarily reside in Australia, a foreign corporation or a corporation in which an absentee person has a controlling interest, and a trust with an absentee beneficiary in certain circumstances.