The State Taxation Amendment Act 2015 (Act) came into effect on 29 June 2015. The Act materialises the State Governments budget announcements in relation to the stamp duty surcharge for 'foreign purchasers' and land tax surcharge for 'absentee owners'.
The Act amends the Duties Act 2000 (Vic) so that a 3% stamp duty surcharge applies to ‘residential property’ acquired by ‘foreign purchasers’ through a dutiable transaction where that transaction occurs after 1 July 2015.
'Foreign purchaser’ includes a foreign natural person, a foreign corporation and a foreign trust.
The definitions for foreign corporation and foreign trust go beyond whether an entity is Australian incorporated or resident entity and look at the degree of foreign controlling interest directly or indirectly in the corporation or trust.
‘Residential Property’ is land in Victoria which has or is intended to have a residential building affixed to it that may lawfully be used as a place of residence.
The meaning of “dutiable transaction” (which is generally considered to be the transfer of land rather than the contract of sale) has been subject to some confusion. However, the Treasurer's Guidelines and information on the State Revenue Office Website assures interested parties that the Contract date is determinative in this regard so that the additional duty will not apply if you entered into a contract to purchase residential property on or before 30 June 2015.
In relation to "off the plan" sales, a purchaser will be required to pay the usual ‘off the plan’ stamp duty plus a surcharge of 3% of the full sale price, representing a significant increase in transaction costs for foreign investors and potentially developers of real estate in Victoria.
The question still remains whether majority foreign owned residential real estate developers will also be subject to the duty surcharge whilst acquiring property for development.
The Act provides the Treasurer with the power to exempt a person who has a controlling interest in a foreign corporation, or a substantial interest in the trust estate of a foreign trust from the duty surcharge with the effect being that the foreign corporation or foreign trust are exempt from the surcharge. Under the Act, the foreign person's degree of control and influence on the corporation's financial and operating decisions will be a relevant factor in granting the exemption. The Treasurer's Guidelines also suggest the following considerations, among others, are relevant:
- whether commercial activities of the foreign purchaser add to the supply of housing stock in Victoria;
- the impact on the economy of the acquisition in terms of the extent and nature of development to occur and effects on competition in the Victorian marketplace; and
- whether foreign controlled entities will be at a competitive disadvantage in providing equivalent services compared to local entities for the purpose of adding to new residential supply.
To gain certainty about whether the surcharge will be payable, the discretionary exemption should be applied for as soon as possible prior to entering the dutiable transaction.
The Act also makes changes to the Land Tax Act 2005 (Vic), through the introduction of an additional 0.5% land tax surcharge for 'absentee owners', applicable from 1 January 2016 onwards. This surcharge is payable on all property holdings whether commercial or residential.
Absentee owner is defined to include natural persons, corporations and trusts. Absentee corporations will be determined on the percentage of foreign ownership which has shareholding, voting power and ability to control the composition of the board.
Similarly to stamp duty, exemptions from the land tax surcharge can be sought from the treasurer. Circumstances relevant to the granting of the exemptions are similar to those for stamp duty.