Foreign Investment Update – Foreign residential developers may seek exemption from new surcharges

May, 2015

Guidelines released by Treasurer

In our recent note (see here) we examined the proposed amendments to the Duties Act (Vic) 2000 and the Land Tax Act (Vic) 2005 introduced via the State Taxation Acts Amendment Bill 2015 (Bill), which introduced new duty and land tax surcharges for non-resident buyers and absentee land owners, namely:

  1. a 3% land transfer surcharge; and
  2. a special absentee owner land tax surcharge of 0.5% (Surcharges).

Amongst others, the Victorian Property Council of Australia lobbied the Treasurer to confirm the circumstances in which an exemption from the Surcharges might be granted.  The concern from local developers was that without an exemption, purchasers would ultimately bear the Surcharges (through higher property prices) and the supply of new residential housing in Victoria could suffer as a result.
In response to these concerns, the Treasurer has released guidelines (see here) which set out how the Treasurer will apply his discretion to grant an exemption from the Surcharges to foreign owned corporations and trusts.
The guidelines clarify two main points being:

1. the land transfer surcharge will not apply retrospectively, meaning the surcharge will not apply to:
(a) developers who have acquired sites (commercial or residential) prior to 1 July 2015 which are intended for
residential use; or
(b) developers who acquire non-residential sites after 1 July 2015 but form the intention to use these for residential
purposes prior to 1 July 2015.
2. The key consideration of the Treasurer, in deciding whether to grant an exemption or not, will be whether the
proposed development will add to the supply of housing stock in Victoria.  This underscores the basic aim of the
exemption, which is to ensure that housing affordability is not adversely affected.


The guidelines also seek to clarify that the Surcharges will not apply retrospectively to purchasers who enter into contracts of sale to buy residential properties prior to the amendment Act commencing on 1 July 2015.  This is problematic as the Bill has not been amended to exclude transactions arising under existing contracts of sale.

Obtaining an exemption from the Surcharges

In accordance with the guidelines, the Treasurer will have regard to any one or more of the following when considering an application for exemption:

1. the nature and degree of interest or ownership and control by a foreign entity (e.g. the degree of day to day control and input);
2. the foreign entity’s practical influence to determine, directly or indirectly, the outcome of decisions of the entity (e.g. the foreign person’s level of involvement in investment decisions);
3. the foreign entity’s ability to influence the outcome of financial, operating and management decisions of the corporation or trust; and
4.  any other relevant circumstances, which the Treasurer has confirmed include:
(a)  impact on the economy;
(b) competition;
(c) impact on the community;
(d) satisfaction of Foreign Investment Review Board requirements;
(e) character of the controlling interest or substantial interest; and
(f) interdependence of management.

Application process

To obtain an exemption from one or both Surcharges, an affected party will need to make an application to the State Revenue Office.  The application process and the timeframes and costs involved are yet to be finalised.  The Bill has been referred to the Upper House Economic and Infrastructure Committee to consider its impact on the housing industry, however with the 1 July 2015 deadline looming, we expect the final legislation and details of the application process to be released in the very near future.

If the exemptions are obtained, foreign owned developers will not be liable for either of the Surcharges.  It is hoped that this will enable these developers to compete fairly with local developers in the development and sale of residential land and housing.

The grant of an exemption remains at the discretion of the Treasurer, but guidance on how this discretion is likely to be applied is likely to be well received by the property industry.  In the meantime Mills Oakley is preparing a template exemption application which will be finalised once further details are available and we will aim to streamline the application process for our many developer clients.

Contact Mills Oakley

If you have any queries please do not hesitate to contact one of our partners:


James Price | Partner 
T: +61 3 9605 0824

Anthony Brearley | Partner
T: +61 3 9605 0810

Tom Cantwell | Partner
T: +61 3 9605 0958



Tony Butler | Partner 
T: +61 7 3228 0432



Lachlan Paterson | Partner
T: +61 2 8289 5895

Catherine Hallgath | Partner
T: +61 2 8289 5806

Tim L’Orange | Partner 
T: +61 2 8289 5816



Adam Peppinck | Partner
T: +61 2 6196 5203



Andrew Logan | Partner
T: +61 8 6167 9802


Patrick Thaung | Partner
T: +61 8  6167 9803

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