The 2021-22 Victorian Budget included various significant transfer (stamp) duty changes, comprising duty concessions for purchases of properties within the City of Melbourne local government area, a widening of the off-the-plan duty concession for home buyers, as well as the pre-announced increase in the rate of duty for purchases of properties worth over $2 million.
The stamp duty changes
Change |
Details |
Application date |
|---|---|---|
New premium stamp duty rate |
Property transactions with a dutiable value above $2 million will be subject to a new premium duty rate, where the duty payable will be $110,000 plus 6.5% of the dutiable value over $2 million (as reported in our previous article). Currently, the top general rate is a flat 5.5%. |
Contracts entered into from 1 July 2021. Contracts entered into before 1 July 2021 but which settle after that date will not be subject to the new premium stamp duty rate. |
Temporary widening of the off-the-plan duty concession |
An increase in the off-the-plan dutiable value ceiling to $1 million[1] for all home buyers. Currently, the off-the-plan dutiable value ceiling is either $750,000 for first home buyers or $550,000 for other home buyers. [1] This is not the same as the contract price. The off-the-plan dutiable value is calculated under a fixed percentage or an alternative method and the dutiable value is generally lower than the contract price. |
Contracts entered into between 1 July 2021 and 30 June 2023. |
Temporary stamp duty concession / exemption for properties within the City of Melbourne local government area |
Temporary 100% stamp duty exemption (excluding any Foreign Purchaser Additional Duty) for purchases of new residential property that has been unsold for 12 months or more since completion with a dutiable value of up to $1 million within the City of Melbourne local government area, which includes the following areas:
Currently, there is no such duty exemption available. |
Contracts entered into between 21 May 2021 and 30 June 2022. |
Temporary 50% stamp duty concession (excluding any Foreign Purchaser Additional Duty) for purchases of new residential property that has been unsold for less than 12 months since completion with a dutiable value of up to $1 million within the City of Melbourne local government area. Currently, there is no such duty concession available. |
Contracts entered into between 1 July 2021 and 30 June 2022. |
[1] This is not the same as the contract price. The off-the-plan dutiable value is calculated under a fixed percentage or an alternative method and the dutiable value is generally lower than the contract price.
Implications for you
If you are a home buyer, investor, and/or developer, the changes are likely to impact you.
New premium stamp duty rate
If you are a home buyer, investor, and/or developer entering into a contract to purchase property in Victoria on or after 1 July 2021, you may have to pay additional duty where the dutiable value of the property exceeds $2 million.
Comparison of duty payable currently compared to duty payable under new premium rate
Dutiable Value1 |
Duty payable now2 |
Duty payable under changes2 |
Difference2 |
|---|---|---|---|
$2,000,000 |
$110,000 |
$110,000 |
$0 |
$2,200,000 |
$121,000 |
$123,000 |
$2,000 |
$2,500,000 |
$137,500 |
$142,500 |
$5,000 |
$3,000,000 |
$165,000 |
$175,000 |
$10,000 |
$3,500,000 |
$192,500 |
$207,500 |
$15,000 |
$4,000,000 |
$220,000 |
$240,000 |
$20,000 |
Notes:
1. This is the higher of the consideration payable and the market value of the property.
2. Assumes that the Foreign Purchaser Additional Duty (current rate 8%) is not applicable.
If you are in the market to buy a property worth more than $2 million, you should consider whether you should and can sign the contract of sale prior to 1 July 2021. This decision will partly depend on whether you may be eligible for the off-the-plan duty concession for contracts entered into from 1 July 2021 – see for example below.
Temporary widening of the off-the-plan duty concession
If you are a home buyer looking to purchase a property off-the-plan or a developer who is looking to sell properties off-the-plan, the good news is that the scope of the off-the-plan duty concession has been temporarily widened to cover higher-value properties for purchases made under contracts entered into on or after 1 July, resulting in stamp duty savings.
By way of example, in the absence of any duty concessions, a home buyer looking to purchase a premium residential apartment in Victoria off-the-plan for $4,000,000 on or after 1 July 2021 would be liable for duty of $240,000 based on the new premium stamp duty rate. However, if the off-the-plan contract is entered into before any construction starts, the buyer may only have to pay duty of $55,000, resulting in a saving of $185,000 (approximately 77%).
In the above example, the buyer is in a better overall position by signing the contract on or after 1 July 2021 – if the buyer were to sign the contract prior to 1 July 2021, the buyer would not qualify for the off-the-plan duty concession and would have to pay duty of $220,000 (calculated at the rate of pre-1 July 2021 rate of 5.5%, on the contract price of $4,000,000).
In our view, this measure is a positive change for those wanting to buy an apartment to live in, which should hopefully result in increased demand for apartments particularly in the Central Business District and in turn secure a pipeline of new development projects. However, as the off-the-plan proportion of sales is important to the viability of projects, we are disappointed that the off-the-plan duty concession has not been fully reinstated by making it available to investors once again given that they previously accounted for a large proportion of sales off-the-plan, driving pre-sales, project feasibility and industry confidence more generally.
Home buyers and developers should consider the potential off-the-plan stamp duty savings in the context of their property objectives.
Temporary stamp duty exemption or 50% concession for properties within the City of Melbourne local government area
If you are a home buyer or investor, consider the opportunity to save stamp duty for purchases of new residential property (with a dutiable value of up to $1 million) located within the City of Melbourne local government area.
Please see below for the maximum duty savings you can expect, depending on the value of the property.
Dutiable Value1 |
Maximum duty savings2 3 |
|---|---|
$400,000 |
$9,535 |
$450,000 |
$11,035 |
$500,000 |
$12,535 |
$550,000 |
$14,035 |
$600,000 |
$15,535 |
$650,000 |
$17,035 |
$700,000 |
$18,535 |
$750,000 |
$20,035 |
$800,000 |
$21,535 |
$850,000 |
$23,035 |
$900,000 |
$24,535 |
$950,000 |
$26,035 |
$1,000,000 |
$27,500 |
Notes:
1. This is the higher of the consideration payable and the market value of the property.
2. Assumes that the purchase is made by an investor, not an owner-occupier and taking into account the current stamp duty waiver for residential property transactions with a dutiable value of up to $1 million for properties purchased under contracts of sale entered into between 25 November 2020 to 30 June 2021 inclusive.
3. Assumes that the new residential property has been unsold for 12 months or more since completion of the property.
Pitcher Partners welcomes the stamp duty relief measures outlined above, notwithstanding the fact that they are temporary in nature. However, it is unfortunate that the Government has decided to offer these concessions to one segment of the property market while at the same time imposing increased taxes and a new Windfall Gains Tax on other sectors. The increased and new taxes will impact commercial landlords, developers and home buyers alike. At this critical time in our State’s recovery from the global pandemic, we believe that the Government should be doing everything possible to support the 1 in 4 Victorian workers employed within the property sector and creating opportunities for businesses within that industry to employ further staff for their projects. The new Windfall Gains Tax, in particular, is likely to put a handbrake on some large scale development projects in regional Victoria and put at risk many jobs that would have supported those projects.
What are the next steps?
Home buyers, investors and developers should consider the impact of these changes and the opportunities to save stamp duty in their circumstances.
Contact your Pitcher Partners representative if you have any queries concerning these stamp duty changes.
