The Victorian Government handed down the 2019-20 Victorian Budget on 27 May 2019, and there are big implications for corporate restructures in Victoria from 1 July 2019. Any corporate groups who are contemplating the intra-group transfer of Victorian assets should consider how these changes will affect them (particularly once the relevant draft legislation is released).
Other significant measures flagged in the Budget include increases in the Victorian "foreign resident" surcharge for stamp duty and land tax and the removal of the existing exemption for gold from the Victorian royalty regime.
Corporate reconstruction exemption
Under the current legislation, certain intra-group transactions between 90% owned corporate groups involving Victorian "dutiable property" (including certain intra-group transactions involving Victorian "landholder" entities) are eligible for a 100% "corporate reconstruction exemption" (CRE) from Victorian duty. Any CRE granted under the current regime is subject to certain conditions such as a general three year post-association requirement (subject to certain exceptions).
However, the Budget has flagged that:
- the relevant "qualifying provisions" for CRE will be "expanded"; and
- from 1 July 2019, the current 100% exemption for eligible CRE transactions will be replaced with a 90% concession (ie. meaning that eligible CRE transactions will be subject to payment of 10% of the relevant duty rather than the current full duty exemption).
While specific detail in respect of these measures is presently limited, the Victorian Treasurer has foreshadowed that as a result of the first measure referred to above, the CRE rules will be more flexible and "[make] it easier for corporate groups to restructure". It is anticipated that relevant draft legislation to give effect to these measures will be released shortly, and it will be interesting to see whether the existing general three year post-association requirement is retained in its present form.
The move to a 90% concession model for CRE is a significant change and if enacted will mean that Victoria is the only Australian State or Territory that does not offer a 100% CRE exemption (although the relevant qualifying CRE criteria / conditions differ in all Australian jurisdictions).
"Foreign resident" surcharge
Currently, certain "foreign resident" entities are subject to a 7% stamp duty surcharge for certain transactions involving Victorian "residential" land and a 1.5% land tax surcharge for all Victorian land (ie. irrespective of whether the Victorian land is "residential" / commercial / industrial etc). These surcharges are on top of the general Victorian stamp duty / land tax rates (meaning that currently for example, a "foreign resident" could pay Victorian stamp duty at the rate of up to 12.5% ie. the general rate of 5.5% and the foreign resident" surcharge rate of 7%).
However, as part of the Budget, the "foreign resident" surcharge in Victoria for:
- stamp duty will increase to 8% for contracts entered into on or after 1 July 2019; and
- land tax will increase to 2% for the 2020 land tax year.
While the "foreign resident" surcharge rate increases bring Victoria in line with New South Wales, it is important to note that Victoria is the only Australian State or Territory which charges the "foreign resident" land tax surcharge for all Victorian property and not just "residential" land (even though the "foreign resident" stamp duty surcharge in Victoria is restricted to "residential" land). Further, the "foreign resident" surcharge captures a broad number of entities – for example, a relevant "foreign resident" entity can include Australian incorporated companies which are foreign owned / controlled. Hence it is a timely reminder that holders of Victorian land should re-consider their Victorian land tax obligations in the context of these proposed "foreign resident" surcharge measures.
Other relevant measures
Some of the other relevant Budget measures include:
STOP PRESS: The Bill has just been introduced into State Parliament. We will be analysing its impact on your business in the coming weeks – stay tuned.
- the existing exemption for gold from the royalty regime will be removed from 1 January 2020, meaning that, in broad terms, the royalty rate for relevant gold production will be 2.75% of the net market value of the relevant gold production;
- the payroll tax-free threshold will be increased from $650,000 to $700,000 by 2022-23, which will be effected by a threshold increase of $25,000 from both 1 July 2021 and 1 July 2022;
- changes focused on regional Victoria including:
- the regional payroll tax rate paid by eligible regional business reduced to 1.2125% (ie. 25% of the corresponding metropolitan rate) by 2022-23;
- the introduction of a 10% stamp duty concession for contracts signed from 1 July 2019 in respect of the transfer of eligible commercial and industrial property located in regional Victoria – with the concession incrementally increasing to 50% by 1 July 2023; and
- certain changes to motor vehicle duty, including the introduction of two new super-luxury thresholds from 1 July 2019.