The Duties Amendment (More Homes) Bill 2024 (Vic) is now before the Victorian Parliament. The Bill temporarily expands the stamp duty concession for off-the-plan purchases, which allows more purchasers (including investors) to access significant stamp duty savings.
What is the bill about?
On 29 October 2024, the Duties Amendment (More Homes) Bill 2024 (Vic) (“the Bill”) was introduced into the Victorian Parliament. As flagged by the Victorian Government, the Bill proposes to temporarily expand the off-the-plan land transfer (stamp) duty concession. The expanded concession will be available for off-the-plan purchases of dwellings, such as apartments and townhouses within strata subdivisions, where the contract is entered into within a 12-month period commencing on 21 October 2024.
What are the changes trying to achieve?
Currently, certain home buyers can access a stamp duty concession when purchasing off-the-plan, generally referred to as the ‘off-the-plan duty concession’. The concession allows construction costs to be deducted from the sale price when calculating the stamp duty payable, which can result in significant stamp duty savings.
However, the existing off-the-plan duty concession is currently only available to first home buyers and owner-occupiers where the reduced property value (or off-the-plan dutiable value) following the deduction of construction costs incurred after the contract date calculated under fixed percentage method or an alternative method is under $750,000 (for first home buyers) and $550,000 (for other home buyers).
It means that many purchasers miss out on being able to access the existing off-the-plan duty concession where the off-the-plan dutiable value is in excess of the above thresholds, including where purchasers enter into contracts later during the construction phase of the development. Further, the existing concession is not available to investors, companies or trusts.
The proposed change will temporarily expand the availability of the concession, so that:
- Anyone purchasing an apartment, unit or townhouse in a strata subdivision off-the-plan can claim the concession, not just home buyers; and
- The property value caps will be removed so that the concession is available for apartments, units and townhouses of any value.
Application of expanded concession
The expanded off-the-plan duty concession can apply if the following conditions are met:
- The dutiable property is residential property consisting of a single dwelling; and
- The residential property is a lot in a strata subdivision that has common property; and
- The contract for the purchase of the dutiable property is entered into on or after 21 October 2024 and before 21 October 2025.
House and land packages or other dwellings that are not part of a strata subdivision are not eligible for the expanded concession.
The expanded concession is not intended to apply to the foreign purchaser additional duty (FPAD), however, foreign purchasers should still be able to benefit from the expanded off-the-plan concession in respect of the general land transfer duty component.
There is an integrity provision that provides the concession will not apply if the Commissioner determines that the contract for purchase of the dutiable property replaces a previous contract for the purchase of the same property entered into before 21 October 2024. This is designed to deter taxpayers who have entered into a contract prior to that date (and therefore would not qualify for the expanded concession) from executing replacement documents to give the appearance that the contract was entered into within the eligibility period (21 October 2024 to 20 October 2025).
When do the changes apply from?
The proposed concession will be available for eligible contracts entered into between 21 October 2024 and 20 October 2025 (even if settlement occurs after this period).
Where contracts signed before 21 October 2024 settle during the 12-month window, the expanded concession will not be available.
Currently, the Bill is still before Parliament and will need to be passed by both houses prior to receiving Royal Assent. If passed, the expanded concession provisions will come into operation on the day on which the Bill receives Royal Assent.
Example of the operation of the expanded concession
Anna is an Australian citizen who wants to buy a new apartment off-the-plan in a high rise city development. The price of the apartment is $2.35 million, and Anna intends to live in the property as her principal place of residence. Anna is not a first home buyer. Assume that construction of the apartment building has not commenced at the date that Anna signs the contract of sale. The dutiable value of the apartment worked out under the fixed percentage method is therefore $587,500.
Under the existing off-the-plan duty concession rules, Anna will not qualify for the concession as the dutiable value of the apartment ($587,500) exceeds the threshold that applies to owner-occupiers who are not first home buyers ($550,000). That means that her stamp duty liability would be calculated on the full purchase price of $2.35 million, resulting in a stamp duty bill of $132,750.
On the other hand, if Anna signs the contract of sale between 21 October 2024 and 20 October 2025, the expanded off-the-plan duty concession rules apply (assuming the Bill is enacted) and she would qualify for the concession. This would result in her stamp duty liability being calculated on the dutiable value of $587,500 (rather than the full purchase price of $2.35 million), resulting in a stamp duty bill of only $30,320 and a significant saving of $102,430.
Pitcher Partners’ perspective
Pitcher Partners have consistently advocated that the restricted availability of the existing concession to a limited pool of first home buyers and certain owner-occupiers in place since 2017 has discouraged property investment in Victoria. This has since been exacerbated by higher interest rates, increases in construction costs and various property taxes introduced by the Labor Government. Historically, off-the-plan sales have been important to the viability of projects, and sales to investors previously accounted for a large proportion of sales off-the-plan, driving pre-sales, project feasibility and industry confidence more generally.
Accordingly, we welcome the expanded concession, which we hope will see a boost in the number of developments getting off the ground and more homes built in Victoria. We are however disappointed that the expanded concession is only for a 12-month period, which means that it will only be of benefit to a limited number of residential development projects which have progressed to the point where the dwellings can be marketed to prospective purchasers, to enable contracts of sale to be entered into within the 12 month window. We urge the Victorian Government to make this expansion permanent, essentially reinstating the off-the-plan duty concession that Victoria had for a long time before it was severely cut in 2017, which started a decline in property investment in Victoria.
What are the next steps?
The Bill will need to be passed by Parliament and then receive Royal Assent to take effect.
Clients should contact their Pitcher Partners representative to review their arrangements and determine what action is required in light of the proposed change.
