1 July 2021 is a key date for new stamp duty measures in Victoria, including the new premium rate of duty (for all property types) and duty concessions for acquisitions of residential properties.
We outline below some important considerations in relation to these changes and opportunities to save duty.
As previously published in our Victorian 2021-22 State Budget stamp duty analysis and our pre‑budget bulletin, a new premium rate of duty will apply from 1 July 2021. Further, 1 July 2021 marks the start date for some new duty concessions.
Since the Budget was handed down, key clarifications have emerged from the legislation and our discussions with the State Revenue Office and Treasury in respect of these measures. These clarifications are important for property buyers, investors and developers, who should consider them now in order to determine what actions may be required to optimise their stamp duty position.
New premium duty rate
Summary of measure
Currently, the top general rate of duty in Victoria is 5.5%. From 1 July 2021, the rate of duty that will apply to transfers of property with a dutiable value above $2 million will be $110,000 plus 6.5% of the part of the dutiable value above $2 million.
Key clarification – transitional rule
There is a transitional rule in the legislation which provides that the new rate does not apply to a dutiable transaction that occurs on or after 1 July 2021 under an agreement or arrangement entered into before that date.
While ‘arrangement’ is not defined in the legislation, the term has a wide meaning and the State Revenue Office (“SRO”) has indicated that it will adopt a broad interpretation of the term. Under this approach, an executed binding agreement prior to 1 July 2021 is not required as long as the parties’ intended actions are captured in writing with sufficient certainty and detail (such as under a Heads of Agreement).
Importantly, the SRO has indicated that they will accept a binding option entered into prior to 1 July 2021 as an ‘arrangement’, such that the premium rate will not apply where the option is exercised on or after 1 July 2021 and a contract of sale is then entered into.
Action to consider undertaking now
Given the transitional rule, if you are currently contemplating a transaction that would result in you acquiring a property with a dutiable value above $2 million, you should consider whether there is an opportunity to enter into an arrangement with the vendor (including a Heads of Agreement or an option) prior to 1 July 2021. By doing so, a substantial amount of duty could be saved. However, this needs to be weighed against the potential duty savings under the duty concessions described below, which are only available if the relevant contract of sale is entered into on or after 1 July 2021. See the Example further below.
Expanded off-the-plan duty concession for residential properties
Summary of measure
Currently, the dutiable value ceiling for the off-the-plan concession is either $750,000 for first home buyers or $550,000 for other home buyers.
For contracts entered between 1 July 2021 and 30 June 2023, the dutiable value ceiling will increase to $1 million. This means that it will be easier for more home buyers to qualify for the off-the-plan duty concession, which can result in significant duty savings for them.
We note that the off-the-plan duty concession is still only available to owner-occupiers, not investors.
Key clarification – combination with 50% City of Melbourne duty concession
As we explained in our recent webinar on the Budget tax changes, based on our reading of the legislation the expanded off-the-plan duty concession can be combined with the 50% duty concession for purchases of new residential properties, which is described below. Treasury has now clarified that the 50% duty concession for City of Melbourne properties can apply to off-the-plan sales and, therefore, the two concessions can be combined, provided that the requirements of the respective concessions are satisfied.
Action to consider undertaking now
Given that the two duty concessions can be combined for off-the-plan purchases by home buyers, home buyers and developers should consider whether they should enter into contracts between 1 July 2021 and 30 June 2022 (noting that the 50% City of Melbourne duty concession expires one year before the expansion to the off-the-plan concession) to take advantage of both concessions. By doing so, a significant amount of duty could be saved – see the Example further below.
50% duty concession (discount) for purchases of new residential property within the City of Melbourne
Summary of measure
From 1 July 2021, there will be a 50% duty concession for purchases of new residential properties with a dutiable value not exceeding $1 million (properties that were not previously occupied or sold as a place of residence and not previously used as short-term accommodation) in the City of Melbourne local government area. This concession applies to properties purchased under contracts entered into between 1 July 2021 and 30 June 2022 and is available to both owner-occupiers and investors.
The concession does not apply to any Foreign Purchaser Additional Duty (currently an extra 8% of duty) payable by a foreign purchaser, including a standard family trust or discretionary trust which does not specifically exclude foreign persons or foreign entities from its scope of potential beneficiaries.
Key clarification – combination with expanded off-the-plan duty concession
As stated above, this concession can be combined with the expanded off-the-plan duty concession.
Action to consider undertaking now
As noted above, given that this concession can apply to off-the-plan purchases and can be combined with the expanded off-the-plan duty concession, home buyers and developers should consider whether they should enter into contracts between 1 July 2021 and 30 June 2022 (noting that the 50% City of Melbourne duty concession expires one year before the expansion to the off-the-plan concession) to take advantage of both concessions. By doing so, a significant amount of duty could be saved – see the Example immediately below.
Example
- A person (“Purchaser”) who is not a foreign purchaser decides to buy a premium apartment in South Yarra for $4 million off-the-plan to use as their principal place of residence.
- At the date of the contract no construction has commenced and, once completed, the apartment will be in a building of more than four storeys.
If the Purchaser signs the contract before 1 July 2021
- If the Purchaser signs the contract before 1 July 2021, whilst the premium duty rate would not apply, the Purchaser will not qualify for the off-the-plan duty concession and the 50% City of Melbourne duty concession.
- The duty payable would be $220,000, calculated at 5.5.% of the $4 million purchase price.
If the Purchaser signs the contract on or after 1 July 2021
- If the Purchaser signs the contract on or after 1 July 2021, the Purchaser is likely to qualify for both concessions.
- The duty payable would be $27,500.
- In the absence of the two concessions, the Purchaser would be looking at a duty liability of $240,000 based on the new premium duty rate ($110,000 plus 6.5% of the purchase price above $2 million).
- Therefore, with the benefit of the two concessions, the Purchaser would save up to $212,500.
Conclusion
- In the above example, the Purchaser is in a significantly better position by signing the contract on or after 1 July 2021.
What are the next steps?
Property buyers, investors and developers should consider the impact of these changes and any opportunity to save duty based on their individual circumstances.
Please contact your Pitcher Partners representative if you have any queries concerning these or other recent Victorian State Budget measures and the implications for your existing and proposed transactions.
