Over the last 12 months, both the Federal and Victorian Governments have announced many legislative changes regarding the ownership of, and investment in, property.

With many of the changes already in effect, and some still to be implemented in the coming months, it may be some time before we know the real impact and whether the changes achieve their intended outcome.

Although not all the changes are dramatic, quoting Bob Dylan, what we can say at this time is, “It’ll soon shake your windows and rattle your walls”.

Provided below is a brief outline for some of the more significant changes.

Changes to stamp duty

First-home buyers purchasing property up to $600,000 will not be required to pay stamp duty, and will receive a duty concession where the property is valued between $600,000 and $750,000.

The changes apply to eligible contracts entered into from 1 July 2017.

Off-the-plan (OTP) stamp duty concessions

OTP duty concessions are no longer available for OTP purchasers of non-residential developments, including holiday homes, investment properties and commercial properties.

The new OTP concessions are only available for buyers who are eligible for either the principle place of residence concession (dutiable value up to $550,000), or the proposed first home buyer duty exemption or concession (outlined above).

These changes will apply to purchases made under contracts entered into on or after 1 July 2017.

For contracts entered into before 1 July 2017, which settle after that date, the previous OTP concessions will continue to be available.

Vacant residential property tax (VRPT) – State Level

With a view to increasing the availability of properties to purchase or rent, the Victorian Government has announced plans to introduce a tax on vacant dwellings from 1 January 2018.

The new VRPT will be calculated at 1% of the Capital Improved Value of the taxable property, and will be levied against residential dwellings within inner and middle areas of Melbourne that are vacant for 6 months or more per year (for affected areas, see: http://www.vic.gov.au/affordablehousing/buying-a-house-in-victoria/re-balancing-the-market.html).

There are, however, some specific exemptions to the VRPT, including properties used as holiday homes by an owner with a separate principle place of residence.

VRPT will be self-reporting, and owners of vacant residential property will be required to notify the State Revenue Office (SRO) of any vacant properties that they own.

Failure to do so may result in penalties and fines with details yet to be announced.

Vacant foreign resident tax – Federal Level

From 9 May 2017, foreign owners of residential properties left unoccupied or unavailable to rent for 6 months in a year or more will pay an annual charge equivalent to the foreign investment application fee paid by the foreign investor when they purchased the property. The minimum fee payable is $5,500.

Foreign resident capital gains withholding (FRCGW) rate and threshold

The Federal Government has changed the FRCGW rate and threshold in an effort to recover additional Capital Gains Tax (CGT) from foreign residents on a sale of their property.

The amended FRCGW rate and threshold will apply to contracts settled on or after 1 July 2017 for Australian real property disposals where the contract price is $750,000 and above.

This is markedly different from the previous threshold, which only applied to property disposals with a contract price of $2 million or more.

The FRCGW withholding tax rate will also rise from 10% to 12.5%, which means that the purchaser (in a property sale) will, at settlement, be required to pay 12.5% of the purchase price to the Commissioner of Taxation if the vendor does not provide a Tax Clearance Certificate.

Changes to commercial building energy disclosure

From 1 July 2017, the mandatory disclosure threshold on commercial office buildings will be lowered from 2000 m² to 1000 m².

Owners or landlords of affected buildings or tenancies that are offered for sale or lease will, therefore, be required to produce a Building Energy Efficiency Certificate (BEEC).

It is crucial that affected owners or landlords obtain a BEEC and register it with the Building Energy Efficiency Register before a building or tenancy having office areas greater than the threshold is put to market. Failure to comply may result in fines up to $210,000 and fines of up to $21,000 per day of breach for subsequent offences.

Compliance is monitored and penalties will apply to any sellers, landlords and agents who do not comply with disclosure obligations under the Building Energy Efficiency Disclosure Act.

More information on these changes is available via this link.

Changes to GST for new home buyers

From 1 July 2018, purchasers of newly constructed residential properties or lots in new residential subdivisions will be required to remit GST directly to the Australian Taxation Office (ATO) at settlement.

The change comes in response to the ATO view that property developers are failing to ‘pass on’ GST received from selling new residential properties through their BAS process.

While the Federal Government has indicated that purchasers using conveyancing services to complete their purchase should experience minimal impact from these changes, there is likely to be a significant imposition on the business processes of residential builders and developers.

As a draft of the enacting legislation has not been issued it is not known exactly how it will be implemented.

Land Tax

Earlier this year, the Victorian Government proposed changes to Land Tax to be introduced in 2018.

Unsurprisingly, it is expected this will result in an increase in revenue received from Land Tax.

The changes will see:

  • the Valuer General become responsible for valuations for rating and tax purposes; and
  • valuations annually (as opposed to every two years).

Tighter regime on underquoting

From 1 May 2017, changes to the Estate Agents Act 1980 regarding underquoting in sales of residential property come into effect.

Victorian estate agents and agent’s representatives are now required to:

  • provide a reasonable estimated selling price;
  • provide three comparable property sales;
  • display a ‘Statement of Information’ for prospective buyers; and
  • comply with advertising prices, terms and symbols.

Compliance is to be monitored by Consumer Affairs Victoria, with fines for non-compliance being up to $31,000 or more.

More serious offences, such as advertising a property below the estimated selling price, may also result in forfeiture of any commission received for the property sale.

Limiting depreciation for residential property claims for plant and equipment

From 1 July 2017, plant and equipment depreciation deductions will be limited to expenses actually incurred by real estate investors, to prevent successive investors from depreciating plant and equipment items in excess of their actual value.

These changes only apply to residential properties, and means that property owners will be unable to claim deductions for plant and equipment items purchased by a previous owner of the property.

Investors in non-residential property will, however, still be able to claim depreciation deductions for plant and equipment including for any additional items purchases by a previous owner.

Foreign Investment Review Board cap at selling 50% to foreigners

As part of an effort to make sure that dwellings are kept available for Australians, the Federal Government has introduced a 50% cap on foreign ownership in new developments, effective from 9 May 2017.

The changes will be applied through conditions imposed on New Dwelling Exemption Certificates (NDECs), which are granted to property developers and act as a pre-approval allowing the sale of new dwellings in a specific development to foreign persons.

This is a big change from the current law, under which NDECs do not limit the proportion of dwellings that can be sold to foreign buyers, and is likely to have a significant impact on some developers.

Denying foreign residents Capital Gains Tax (CGT) exemption

Foreign or temporary tax residents who own property are unable to claim the CGT main residence exemption from 9 May 2017.

Properties owned by foreign and temporary tax residents before that date, however, will be grandfathered until 30 June 2019, which means that foreign and temporary tax residents who own a main residence as at 9 May 2017 can claim the main residence CGT exemption in respect of a sale of that property made before 30 June 2019.