- Victorian state budget …the aftermath
Following his handing down of the Budget on 27 April, Victorian Treasurer, Tim Pallas, tabled the State Taxation and Other Acts Amendment Bill 2016.
The Bill included the announced increases of the duty surcharge, from 3 per cent to 7 per cent, and the land tax surcharge from 0.5 per cent to 1.5 per cent. What came as a surprise to industry was that the Bill included unannounced amendments to the Duties Act which further impact foreign purchasers of residential property. These additional amendments included:
A new definition of ‘residential property’ which includes land:
- that is capable of being used solely or primarily for residential purposes;
- that is used for short-stay accommodation, including a hotel, motel, serviced apartment, retirement village and student accommodation.
- that the purchaser intends:
- to construct a building that is capable of being used solely or primarily for residential purposes; or
- to refurbish or extend existing non-residential buildings so that they are capable of being used solely or primarily for residential purposes; or
Transitional rules which apply the existing legislation (and the 3 per cent surcharge) to contracts entered into prior to 1 July 2016, but which then later impose the higher rate of the 7 per cent surcharge where the original acquisition was not ‘residential property’ but the purchaser forms an intention on or after 1 July 2016 to turn it into ‘residential property’. This could be a nasty surprise for some developers.
The property industry, which had lobbied for reforms to the original legislation for over 12 months, promptly called upon the Treasurer to re-think some of these further changes, along with the proposed increase to the surcharge rates.
Subsequently, in a win for developers and investors in retirement villages and properties that are ‘commercial residential premises’ for the purpose of the GST Act (which would include hotels, motels, serviced apartments and student accommodation), an amendment to the Bill will exclude them from being classified as ‘residential property’. On 12 June, the Bill was committed to a State Parliamentary Committee for further deliberation.
No such amendments were forthcoming for the foreign investor tax surcharge, however, which is now moving interstate to Queensland, with New South Wales likely to follow the Victorian lead.