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Tasmania delivers budget to strengthen the state and makes proposed revenue changes

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On Thursday 26 May, Tasmanian Treasurer Michael Ferguson delivered Tasmania’s 2022-23 State Budget, less than two months after taking over from former premier and treasurer Peter Gutwein. Earlier in the month, on 3 May 2022, a number of Bills were tabled in Parliament to make some revenue changes, including the anticipated introduction of a foreign land tax surcharge.
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Tasmania’s economy grew by 3.8%, and is forecasted to grow by 2¾% in 2022-23 and 3% in 2023-24, with an expected increase in domestic and international tourism and overseas migration.

The budget reported a deficit expected of $474.6m in 2022-23, while returning to a surplus of $19.1m in 2023-24, forecasted to $32.2m in 2024-25 and $30.5m in 2025-26. Net debt is forecast to hit nearly $3b by June 2023, and then rise to more than $5b in 2026.

The employment rate sitting at 4.5%, and set to grow by 2¼ per cent in 2021-22, and is then forecast to grow moderately by 1¼ per cent in 2022-23, while the unemployment rate is expected to stay at 4.5%.

Key highlights

  • $11.2b for the health care sector including $150m for 'digital health'.
  • $8.5b for education, skills and training.
  • $5.6b infrastructure spend for schools, hospitals and communities.
  • $538m being invested into social and affordable housing and homelessness initiatives over four years.
  • $305m in concessions to help vulnerable Tasmanians meet the cost of living, including for water bills, electricity and council rates.
  • $10m for tourism.

The housing initiatives included in the budget include a continued First Home Owners Grant, releasing more residential land, lifting land tax thresholds, a housing market re-entry program and stamp duty concessions.

The Government has extended the current $30,000 First Home Owners Grant to 30 June 2023 and doubled the Residential Land Rebate available from $15 million to $30 million to accelerate vacant land supply in relation to the Headworks Holiday program.

An additional $2.5 million has been allocated for the ancillary dwelling grant program to provide an extra 250 rental properties, doubling the initial 250 places. As part of the HomeShare (Housing Market Entry) program, the Government has reduced the requirement for a deposit to 2% of the purchase price, and doubled the State’s equity contribution to a maximum of $200,000 or 40% for new homes/units and up to $150,000 or 30% for eligible established homes or units.

Revenue Measures

Stamp duty concessions

The Government has increased the property value threshold for stamp duty concessions to $600,000, to reflect increases in property prices. The dutiable value cap will increase from $500,000 to $600,000, with the new cap to apply retrospectively from 1 January 2022.

While the Budget itself did not include it, the Duties Amendment Bill 2022 (Tas) was earlier introduced into Parliament which proposes changes to recognise non-interest based purchases of property, such as those undertaken in Islamic finance arrangements, for the purposes of transfer duty. The amendments (effective from 1 July 2022) seek to ensure that property purchases funded by these types of finance are subject to duty only once.

Land tax

The land tax thresholds will change such that:

  • the tax-free threshold will double to $100,000 and the upper threshold will increase to $500,000; and
  • the tax rate applying to land valued between $100,000 and $500,000 will reduce from 0.55 per cent to 0.45 per cent

Accordingly, the rates of land tax applying from 1 July 2022 will be as follows:

Total Land Value

Land Tax Payable

$0 - $99,999

Nil

$100,000 - $499,999

$50 plus 0.45% of value above $100,000

$500,000 and above

$1,975 plus 1.5% value above $500,000

Foreign Investor Duty Surcharge (FIDS)

While the Budget itself did not include it, the Duties Amendment Bill 2022 (Tas) was earlier introduced into Parliament which made some changes to the operation of FIDS. In particular:

  • The meaning of residential premises (and more particularly what is not residential premises) is “clarified”. A recurring issue with the application of surcharges across Australia, is the distinction between “residential” and “commercial residential”. Until now, the distinction in Tasmania has not been clear. Each jurisdiction has adopted a slightly different approach, and Tasmania is different again. As stated above for FILTS, properties on AirBnB and like will be taken to be residential. Also, the change is to be made with retrospective effect, and so it is possible that a surcharge has not been applied to a transaction on the basis that it was not “residential”, with it now being treated as “residential”. While we expect that the “clarified” definition aligns with the practice of the SRO, some “borderline” cases might now be subject to surcharge.
  • The determination of self-managed superannuation funds (SMSF) and testamentary trusts as “foreign” will also be “clarified” such that beneficiaries of such trusts will be taken to have a beneficial interest in the capital of the trust, and as such could cause the trust to be a “foreign trust” and be subject to surcharge. Similar to the “clarification” of “residential”, the change is to be made with retrospective effect, and so it is possible that a surcharge has not been applied to a transaction on the basis that the acquirer was not “foreign”, with it now being treated as “residential”. We expect that the “clarified” definition is likely to cause reassessments.
  • While a change in the use of a property to “residential” within 3 years of acquisition has been subject to a reassessment and “clawback” of FIDS, a refund will also be available if the change in use goes the other way (eg residential to commercial) within 12 months of acquisition. While this addition also has retrospective effect, an application for reassessment must be made before any interest in the property is transferred. Therefore, if a foreign person has changed the use after an acquisition made on or after 1 July 2018, but has since onsold the property before the amendment commences, a reassessment may not be available.
  • From 1 July 2022, FIDS relief will be available to Tasmania-based foreign developers that significantly contribute to the State’s housing supply by at least building 50 residential dwellings over a 12 month period. In contrast to other States, it applies as a refund only, and not an exemption upfront. Also, the qualifying criteria are more objective and more focused on Tasmania, rather than being Australian-based. It is therefore more restrictive, and it seems that the landowner and employer needs to be the same entity, which is not necessarily a common ownership structure in the property development industry. It is unclear whether that same entity is also required to be the developer.

 

Foreign Investor Land Tax Surcharge (FILTS)

A foreign land tax surcharge was announced in the 2019/20 Tasmanian Budget, however was not implemented. However, in the event that the Land Tax Amendment (Foreign Investors) Bill 2022 (Tas) passes through both houses of Parliament, the FILTS will now commence from 1 July 2022 with the following key features:

  • Rate of 2% of the land value to any interest in residential land that is acquired by a foreign person, company or trust.
  • Foreign person has the same meaning as in the Duties Act 2001 (Tas) as it applies to FIDS, which is a welcome move to avoid undue complexity.
  • There is no tax-free threshold for FILTS. Therefore, FILTS may be payable even if there is no land tax liability for the foreign person.
  • FILTS will only apply to land acquired on or after 1 July 2022 or to land acquired by a foreign person prior to 1 July 2022 if they acquire a further interest in the same land after the commencement of FILTS. This is a different approach to the other States and Territories, under which surcharges applied to already held land (subject to some narrow transitional rules). This seems a fairer outcome for landowners who acquired land at a time when the surcharge did not exist.
  • FILTS is not charged on principal residence land or commercial residential properties. While the definition is similar to the concept of “commercial residential premises”, it is not the same as the meaning for GST purposes, and is different again to the approach of other jurisdictions. A unique feature is that it clearly excludes premises used for Air BnB and the like.
  • FILTS relief is available to Tasmania-based foreign developers that significantly contribute to the State’s housing supply by at least building 50 residential dwellings over a 12 month period. In contrast to other States, it applies as a refund only, and not an exemption upfront. Also, the qualifying criteria are more objective and more focused on Tasmania, rather than being Australian-based. It is therefore more restrictive, and it seems that the landowner and employer needs to be the same entity, which is not necessarily a common ownership structure in the property development industry. It is unclear whether that same entity is also required to be the developer.

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