The Victorian Government has announced significant changes to the off-the-plan (OTP) stamp duty concession. These changes will increase the stamp duty cost to property investors and some home buyers.
What is the existing OTP concession?
The existing OTP concession applies to all properties that are purchased off-the-plan, including residential and commercial properties. The concession reduces the buyer’s stamp duty cost by limiting the duty to the value of the land and any completed construction works as at the date the contract of sale is signed.
What are the changes?
Once the changes come into effect, the OTP concession will only be available to buyers who are purchasing an OTP property to live in as their principal place of residence (PPR). The concession will no longer be available in respect of commercial properties or to residential buyers who are investors.
Certain thresholds must also be met for home buyers to access the OTP concession –
- For buyers who are eligible for the first home buyer (FHB) duty exemption or concession, the dutiable value of the property (OTP value) must not exceed $750,000;
- For buyers who are not eligible for the FHB duty exemption or concession, but who intend to occupy the property as their PPR, the dutiable value of the property must not exceed $550,000.
At least one purchaser must also use the property as their PPR for a continuous period of 12 months, commencing within 12 months of taking possession of the property.
In order to be eligible for the FHB duty exemption or concession, buyers must be eligible for the first home owner grant. This means that foreign purchasers are not able to access the FHB duty exemption or concession, and will therefore only be able to access the OTP concession after 1 July where they intend to occupy the property as their PPR and the dutiable value of the property does not exceed $550,000.
Australian resident buyers who are eligible for the first home owner grant will no longer have to pay any stamp duty where the dutiable value of the property does not exceed $600,000. For properties with a dutiable value between $600,001 and $750,000 a duty concession will apply.
When do the changes come into effect?
The new rules will apply to any contract of sale signed on or after 1 July 2017. The existing OTP concession will continue to apply to any contract signed before 1 July 2017, including in circumstances where a different purchaser is nominated on or after 1 July.
Can you give me an example of how the new rules will apply?
Alice is an Australian resident. She wants to buy a new apartment off-the-plan in a high rise city development. The price of the apartment is $2.5 million and Alice intends to live in the property as her PPR but she is not eligible for the first home owner grant. Assume that construction of the apartment building has not commenced at the date that Alice signs the contract of sale and the dutiable value of her apartment worked out under the fixed percentage method is therefore $625,000, being 25% of the price.
If Alice signs the contract prior to 1 July 2017, the OTP concession will apply and her stamp duty cost will be approximately $32,000. On the other hand, if Alice signs the contract on or after 1 July 2017, the OTP concession will no longer be available to her because the dutiable value of the apartment exceeds the threshold for the PPR concession of $550,000. Accordingly, Alice’s stamp duty cost will increase by more than $100,000 to $137,500.
Who will be affected and what should they do?
All investors who do not intend to live in the property as their PPR will be affected by the changes from 1 July. Those investors will no longer be able to access the OTP concession and will therefore pay stamp duty on the full value of the properties they buy.
Home buyers who intend to live in the property as their PPR will also be affected where the dutiable value of their property exceeds the relevant threshold of $750,000 (first home owner grant recipients) or $550,000 (other buyers who intend to live in the property as their PPR).
Foreign buyers will feel the sting even more because they are also subject to the foreign purchaser surcharge of 7% on top of the standard stamp duty. A foreign buyer of Alice’s $2.5 million apartment will incur stamp duty of $312,500.
All buyers who will be affected by the changes to the OTP duty concession and who are currently in the market to buy an OTP property should consider whether there is an opportunity to sign the contract of sale prior to 1 July 2017. By doing so they could save themselves a substantial amount of stamp duty.