VIC State Budget 2017-18 | Property Taxes

By Craig Whatman - May 2, 2017

The Victorian Government has confirmed several changes to property taxes, which will have implications for property developers and investors.

As expected from announcements earlier in the year, the Budget introduces a number of property-related measures that are aimed at increasing the supply and improving the affordability of housing in Victoria.

These measures include abolishing stamp duty for first-time buyers of homes up to $600,000 (with a tapered discount applying between $600,000 and $750,000) and doubling the First Home Owner Grant to $20,000 for new homes in regional Victoria. The government has also announced a new program known as HomesVic, under which the government will co-purchase properties with first home buyers.

However, there are also significant changes that will affect property investors. From 1 July 2017, the off-the-plan stamp duty concession will only be available for home buyers who qualify for the principal place of residence stamp duty concession or those who are eligible for the first homebuyer stamp duty concession. 

This means that investors will no longer be able to benefit from the off-the-plan concession; the amount of stamp duty payable on investment properties purchased off the plan will significantly increase. It is unclear whether there will be accompanying transitional provisions that protect existing contracts that have not yet settled. In particular, it is not yet clear whether investors who have signed a contract to purchase a property prior to 1 July will be able to nominate a new purchaser after that date without losing access to the off-the-plan concession.

The stamp duty exemption for transfers of investment properties between spouses will also be abolished from 1 July 2017, which may affect financial planning opportunities for our clients. An exemption will remain in place for properties occupied as the principal place of residence. At this stage it is unclear whether the property will need to be the principal place of residence of the transferor or the transferee for the exemption to be available, as the amending legislation is yet to be released.

Further, from 1 January 2018, a new vacant residential property tax will be imposed on owners who leave their properties vacant for more than six months in any calendar year. The tax rate will be 1% of the capital improved value of the property. Various exemptions will be available, including for deceased estates, holiday homes, and homes owned by Victorians who move temporarily overseas.

In addition, property valuations for land tax will occur annually rather than every two years from 2019. Although this should minimise large spikes in land tax bills, the change will create an additional cost for investors and owners by requiring them to review their property valuations more frequently. 

What this means for you

Developers of residential and commercial properties in Victoria should consider the impact the removal of the off-the-plan stamp duty concession for investors will have on their future developments and sales.  Significant duty savings could be achieved if property acquisitions are made prior to the removal of the concession. 

Conversely, there will be a significant increase in the duty payable for purchases of investment properties off-the-plan after 1 July 2017. By way of example, an investor who purchases a property with a contract price of $2.4 million before 1 July can expect to pay around $200,000 in stamp duty on the transfer. After 1 July 2017, the same investor will pay around $300,000 of duty on the same transfer, representing a $100,000 increase in duty payable.

It will be important for investors to confirm the total amount of stamp duty (including any applicable foreign purchaser duty) they will need to pay before they proceed with their next acquisition. Investors should also ensure that there will be no adverse consequences for nominations made on or after 1 July under contracts entered into prior to that date.

In addition, the introduction of the vacant residential property tax and the removal of the stamp duty exemption for transfers between spouses and de-facto partners should be carefully considered in business and financial planning. 

On a more positive note, the abolition of stamp duty for first homebuyer purchases under $600,000, combined with the doubling of the First Home Owner Grant for buyers in regional Victoria, will create further investment and planning opportunities for developers, especially in Melbourne’s growth areas. The off-the-plan concession will also remain available for home buyers of properties with a dutiable value of up to $750,000. 


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