Since our last update on the proposed duty surcharge on foreigners pursuant to the State Taxation Acts Amendment Bill 2015 (Bill), we are pleased to confirm the pre-eminent industry associations in Victoria, the Urban Development Institute of Victoria (UDIA) and Property Council of Australia (PCA), have lobbied for key clarifications on the implementation of the Bill.

Maddocks played an active role in providing comments and feedback to the submissions made by the UDIA and PCA.


Whilst the legislation will not be amended, the Treasurer has issued clarification guidelines about the intended application of the Bill (Guidelines). Please refer to the Guidelines for more information.

The key ‘wins’ for the residential development industry are as follows:


The Treasurer has made it clear the term ‘enter into a dutiable transaction’ in the Bill is intended to have the effect that the Bill is not retrospective. The Guidelines specifically state contracts of sale entered into prior to 1 July 2015 are not captured.

The State Revenue Office (SRO) has confirmed that on transactional matters that this includes all agreements and arrangements entered into prior to 1 July 2015, including options.


The Treasurer has confirmed in his Guidelines ‘the persons that 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 through re-development, where such development is primarily residential)’.

The Guidelines very clearly state ‘the intention to exempt from the non-resident duty surcharge remains at the discretion of the Treasurer’.

In exercising this discretion, the Treasurer will take into consideration a number of factors detailed in the Guidelines as part of the Treasurers right to take into account ‘any other relevant circumstances’ as per the Bill. These include:

  • The degree of day to day control or input into the decisions of the corporation or trust a foreign person may have and the relationship between the persons responsible for the day-to-day operation of the corporation or trust and the foreign person.
  • The location of the entity’s central management and the ability for the management to make decisions independent of the foreign person who holds the controlling interest in the corporation or substantial interest in the trust estate.
  • The level of Australian participation in the corporation that conducts its activities in Victoria with a foreign controlling interest or trust with a foreign substantial interest and also the level of use of Australian building contractors and other employees of the entity that conduct residential activities in Victoria.
  • Whether the foreign person’s commercial activities include the development and management of housing stock in Victoria.
  • Whether the foreign person is withholding land from being made available for development or sale in Victoria and not actively adding value to the property.
  • Whether the foreign person has notified the Foreign Investment Review Board (FIRB) for the purposes of purchasing residential property for development either as part of its ‘annual program’ or otherwise.


How the Treasurer will apply these Guidelines, and which developers will obtain an exemption, only time will tell. A few areas of uncertainty, and further questions that arise, are as follows:

  • Most importantly we query how far reaching the exemptions will be. Will the exemption be provided per development, therefore requiring a developer to seek an exemption each time? Or will the exemption be given to a specific developer, and provided the developer carries out each of its developments within certain parameters (even if it sets up new special purpose vehicles to carry out each development), the exemption will stand? Therefore,  introducing a similar concept as the FIRB ‘annual program’.
  • What will be the process for seeking an exemption – how long will it take, are there appeal rights if applications are rejected and will the reasons for rejections be publicised? Can previous decisions granting exemptions be used as a precedent in future applications?
  • Will a company carrying out residential development in Australia, who engage Australian consultants and have an office in Australia, but who are 100 percent backed by foreign investors be granted an exemption?  This will become a subjective decision by the Treasurer regarding the ‘control’ vs ‘contributing to the Australian housing market’ factors in the Guidelines. Only the results of applications for exemptions will provide the necessary clarification.
  • Further clarification is needed around the definition for residential property, particularly as it relates to ‘on which a foreign purchaser intends to affix a building’. When will this intention be formed from a tax perspective, such as the issue of a building permit?


The Treasurer has also issued guidelines on the use of its discretion as to who is an ‘absentee person’. These guidelines include the same concepts as detailed in the surcharge Guidelines save references to ‘foreign person’ are replaced with ‘absentee owner’. Similar issues will arise as detailed above. Please refer to the Guidelines for more information.


Both guidelines are not legally binding and are only effective with this Treasurer and current government. The UDIA has confirmed its intention to seek confirmation of these guidelines in an SRO Ruling. Maddocks will continue to feed its opinions and its clients’ views to the UDIA and PCA.

Developers that may potentially be affected by the surcharge or absentee land tax should consider starting the process now to seek an exemption and determine if an exemption can be sought for all developments they carry out, or if they will need to make individual applications for each development.