28 Apr 2016
Victorian budget 2016/17 tax and duty changes: land, payroll, and partnerships affected
by Andrew Sommer, Kelvin Ng, Simon Bowden, David Wong
There are some increased taxes and duties in Victoria's budget, but also some higher thresholds and extended exemptions.
Foreign buyers of residential property and absentee landlords will face higher costs under tax and duty changes announced in the 2016/17 Victorian budget on 27 April 2016:
Discretionary exemptions for foreigners
Although the increase in land transfer duty surcharge for foreign purchasers of residential property is quite significant, foreign purchasers of residential property should be aware that there is a discretionary exemption from the additional duty which has been available since the introduction of the additional 3% duty for foreign purchasers on 1 July 2015. So far there is no indication that this exemption will not be made available to the new 7% rate of duty for foreign purchasers. Based on the gazetted guidelines, the exemption is intended to apply to corporations and trusts that are Australian based (albeit foreign owned) and whose commercial activities add to the supply of housing stock in Victoria (either through new developments or through re-development, where that development is primarily residential). As the exemption is discretionary, taxpayers should seek to apply for the exemption prior to entering into any transactions.
A similar discretionary exemption is available for the land tax surcharge imposed on absentee corporations who are landowners. Based on the gazetted guidelines, the exemption in the land tax context is intended to apply to corporations which conduct commercial operations in Australia and whose commercial activities make a strong and positive contribution to the Victorian economy and community by engaging local labour and utilising local materials and services.
A different take on partnerships?
It is interesting that the State Revenue Office Land Tax Compliance Program mentions undeclared changes in the composition of business partnerships that own land. The newly announced focus on undeclared changes in business partnerships that own land suggest that there may be a change in the stance of the State Revenue Office on a type of transaction which previously would have been thought not to trigger any duty implications. The Victorian duties legislation is and remains the only duties legislation which is silent on the duty treatment of dealings in partnership interests where the partnership property includes land. Nor does the State Revenue Office website give any guidance on the duty treatment of dealings in such partnership interests. Taxpayers investing in Victoria using partnership structures should be wary.