The 2016-17 Victorian State Budget was released on 27 April 2016 and is set to have a large impact on the property market.
In the following article, we discuss the impact of these changes and what this means for foreign property investors and business locally.
A number of changes announced in yesterday's Budget will have a significant impact on foreign land owners, including:
1. The foreign duty surcharge on residential property will increase from 3% to 7% (effective rate of 12.5%) for contracts entered into on or after 1 July 2016
2. Land transfer duty revenue is expected to generate $5.7 billion in 2016-17, which is an increase of 14%. This implies a moderate correction to the current upswing of 23% average annual revenue growth, over the three years to 2015-16
3. The absentee landowner surcharge will rise from 0.5% to 1.5%, tripling the surcharge (resulting in an effective rate of 3.7%) from 2017
4. Land tax revenue is forecast to increase in 2016-17 by 28.3%, largely as a result of the biennial land revaluation which is currently underway. This latest revaluation cycle covers the period from 1 January 2014 to 1 January 2016.
Whilst permanent Australian residents and New Zealand citizens are exempt from the new taxes, the surcharges have the ability to indirectly impact local businesses in the following ways:
An effective 12.5% duty on foreign purchasers will make Victoria significantly less attractive for foreign buyers than Sydney and Brisbane. In addition, this increase from 3% to 7%, is likely to impact on the construction industry and related jobs in Victoria
Commercial landlords are able to pass the foreign land tax surcharge on to their tenants, which means that Victorian businesses will ultimately bear the cost.
The Victorian State Revenue Office has been slow to provide duty exemptions for foreign owned developers and land tax exemptions for foreign owned businesses, which adds to the uncertainty in the Victorian property market.
These changes will significantly increase the cost of property for foreign investors, so it is important that foreign land owners consider applying for an exemption.
To find out how these changes impact you and whether you're eligible for an exemption, please contact our Tax experts, Stephen O’Flynn, Simon Tucker and Abi Chellapen or your ShineWing Australia relationship partner for further details.