By Julie Barkla
September 9, 2016
Unless an exemption applies, stamp duty is payable on all real property purchased in Victoria.
The applicable rates of stamp duty depend on factors including: whether the property purchased will be the purchaser’s principal place of residence, whether the purchaser is a first home buyer or a pensioner and the price paid for the property.
Sliding scales apply to the rates of stamp duty, but after the property’s value exceeds around $960,000, it largely amounts to a flat 5.5% of the purchase price. So on a property worth $1,000,000, that’s a tax of $55,000. On properties worth less than $960,000, the rate is more like 5.2%.
From 1 July 2015, additional stamp duty of 3% (on top of the existing rates) became payable by non-Australian residents purchasing residential property in Victoria. This new duty surcharge applied to all contracts signed on or after 1 July 2015 and all contracts entered into before 1 July 2015, if the purchaser named in the contract nominated a new purchaser after 1 July 2015, and that new purchaser was a foreign national.
The Victorian Government announced in its 2016-2017 Budget that this additional stamp duty surcharge for foreign purchasers would increase from 3% to 7% for contracts entered into on or after 1 July 2016.
It is worth noting that foreign persons (namely individuals who are not ordinarily Australian residents) are not permitted to purchase existing residential property in Australia, unless the purchase is for the purpose of immediate demolition and development. In fact, heavy fines and jail terms can be levied on those who choose to ignore the prohibitions contained in the Foreign Acquisitions and Takeovers Act 1975 (Cth) and its Regulations.
The main class of property a foreign national person can buy in Australia is “new residential” property. These are usually new apartments, often purchased “off the plan”, that is before they are built. Such sales would appear to be good for the Australian economy because these purchasers provide work for local builders, developers and suppliers, and allow building work to take place that may not otherwise be undertaken if it was not being funded by foreign nationals.
A foreign national buying a new apartment for $600,000 (Melbourne’s median property price) before 1 July 2015, would have paid stamp duty of $31,070 on that purchase. For contracts signed after 1 July, the stamp duty payable by a foreign national became $49,070 (namely additional duty of $18,000). For contracts entered into on or after 1 July 2016, this duty surcharge becomes an additional $42,000, rather than $18,000.
Also, from 1 July 2015 an additional 0.5% imposition of land tax was levied on all property (not just residential property) owned by “absentee owners” (which includes non-residents and foreign nationals). From 1 July 2016, Victorian Treasurer Tim Pallas has announced that this additional imposition will increase from 0.5% to 1.5%.
The administration of foreign investment in Australian land changed significantly from 1 December 2015. Obtaining the consent of the Foreign Investment Review Board (FIRB) to a prospective purchase went from being a “no cost” exercise, to an extremely costly undertaking for non-resident purchasers.
Significant FIRB application fees have been introduced for the acquisition of all property types (even those previously exempted, such as commercial property) by foreign buyers, and for some developers selling property to foreign buyers.
FIRB fees start at $5,000 to apply for approval to purchase a new residential property worth less than $1,000,000, increasing to $10,000 for properties valued at between $1,000,001 and $2,000,000 and a further $10,000 for each $1,000,000 in property value thereafter.
Some developers of new residential properties will now need to consider whether they will absorb these fees themselves (in which case they need to pay an additional FIRB application fee of $25,000 plus the fees which would otherwise be payable by the purchaser, if they wish to obtain Blanket Approval to sell to foreign buyers) or have their foreign purchasers attend to this cost directly.
The Federal Government has now enacted legislation to enhance its ability (through the Australian Taxation Office) to collect Capital Gains Tax (and gains on revenue account) from foreign residents who dispose of their Australian real property.
For any property sold on or after 1 July 2016, which property is valued at $2,000,000 or more, all purchasers will be required to withhold from their vendor 10% of the purchase price of the property (which has been described as a “10% non-final withholding tax”) and remit this amount to the ATO “without delay”.
The only circumstance where a purchaser is not obliged to withhold 10% of a property purchased for $2,000,000 or more, is where they have been “shown” by the vendor (or presumably provided with) a clearance certificate from the ATO, which attests to the vendor not being a foreign resident. A clearance certificate is valid for 12 months from issue, and must be valid at the time the transaction is entered into (some clarity is sought from the ATO as to whether this is intended to be the contract date or the settlement date).
Somewhat alarmingly, where a purchaser is unaware or otherwise fails to withhold 10% of the purchase price on a property purchased for $2,000,000 or more (namely a minimum of $200,000), the purchaser becomes personally liable to make an equivalent payment to the amount not withheld, to the ATO.
Also of some concern are indications from the ATO that clearance certificates may take 28 days or longer to obtain.