Federal & Victorian State Budgets 2015 – impact on foreign property investors

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Victorian State Budget

On 5 May 2015 the Victorian State Government released its 2015-2016 State Budget Paper, announcing its fiscal policies for the forthcoming financial year. In this Paper the Government formally announced its plans to impose two new surcharges on foreign purchasers of residential property in Victoria, being:

  • a 3% land transfer surcharge; and
  • a special absentee owner land tax surcharge of 0.5%.

The State Taxation Acts Amendment Bill 2015 has now been introduced and is expected to be enacted as law very shortly. The key changes are set out below.

Land Transfer Surcharge

From 1 July 2015 “foreign purchasers” (defined as foreign natural persons, foreign corporations and foreign trusts) will be required to pay a land transfer surcharge:

  • upon a change of use of land (to a residential use) owned by a foreign purchaser; and
  • upon the transfer of “residential property” (as defined) to a foreign purchaser.

The key points to note are:

  1. The Land Transfer Surcharge is 3% of the dutiable value of the property (being the higher of the market value and the purchase price).
  2. Where there is a change of use, i.e. a foreign purchaser owns commercial property which it now intends to use for residential purposes, the foreign purchaser must lodge a statement of intention  with the Commissioner within 14 days of forming that intention.
  3. The Land Transfer Surcharge is payable 30 days from the transfer of the land (settlement) or the date that an intention to change the use of the land is formed and is payable in addition to the standard duty payable on a land transfer.
  4. The Land Transfer Surcharge will not apply to the transfer of residential property to foreign purchasers who entered into contracts prior to 1 July 2015, but will apply to any change of use after this date.
  5. No concessions, for example where property is purchased “off the plan”, as the foreign purchaser’s principal place of residence or as a first home, are available to reduce the Land Transfer Surcharge.

Land Tax Surcharge

Land tax assessments for 2016, which will issue based on a person’s landholdings as at 31 December 2015, will require “absentee owners” (defined as a natural absentee person, an absentee corporation or the trustee of an absentee trust) to pay an additional 0.5% land tax surcharge on all of their landholdings calculated in accordance with the taxable value of the land.

The key points to note are:

  1. The Land Tax Surcharge is 0.5% higher than ordinary land tax payable by non-absentee owners.
  2. Joint land owners will be assessed for land tax separately where one but not all joint owners is an absentee owner.
  3. Absentee owners as at 31 December of each year are required to lodge written notice with the Commissioner before 15 January of the following year confirming their absence.
  4. The Special Land Tax applies to all types of property, including commercial, industrial and residential.

Federal Budget 2015

The Federal Budget was announced on 12 May 2015 and as expected, the Federal Government has introduced a number of changes to the foreign investment review board (FIRB) approval process and new fees payable by foreigners from 1 December 2015.

The key points to note are:

  1. New fees will be payable for FIRB applications, based on the value of the property being purchased. These fees are:
    1. For residential properties:
      1. $5,000 for a property valued under $1 million
      2. $10,000 for a property valued over $1 million, then a $10,000 incremental fee increase per additional $1 million in value
    2. For businesses – $10,000 – $100,000
    3. For agriculture – $5,000 – $100,000
  2. Compliance with the Foreign Acquisitions and Takeovers Act 1975 (Cth) (Takeovers Act) will now be monitored by the Australian Taxation Office (ATO).
  3. The penalties for non-compliance with the Takeovers Act have also been increased from 1 December 2015. For residential purchases the maximum civil penalty is the greater of the capital gain made and 25% of the value of the property.
  4. A register for foreign investment in agriculture will be established from 1 July 2015. The ATO will commence collecting data for the agricultural land register on 1 July 2015, with the intention to expand the register to all land by 1 July 2016.
  5. A new $55 million screening threshold (based on the value of investment) will apply from 1 December 2015 to investments in agribusiness.

For further information regarding these changes and how they may affect you or your clients, please do not hesitate to contact one of our Property Partners.

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