Stamp duty and property tax update

07 March 2017

A number of new measures were proposed by the Victorian State Government over the weekend relating to stamp duty and property taxes.

Whilst this is also subject to the passing of the State Taxation Acts Amendment Bill 2017, a brief summary is set out below:

1. Abolition of first home buyer stamp duty

For contracts entered into on and from 1 July 2017, the Victorian Government will abolish stamp duty for first home buyers purchasing a home with a dutiable value of not more than $600,000. This means the existing 50% first home buyer stamp duty reduction for a purchase with a dutiable value of not more than $600,000 becomes a full 100% exemption.

Additionally, duty will now be charged on a concessional basis for eligible first home buyers who purchase a home with a dutiable value between $600,001 and $750,000 (instead of at the full rate).

In real terms, a first home buyer will save $15,535 on a purchase of $600,000 (i.e., paying no stamp duty instead of 50% stamp duty) and a first home buyer will save $22,713 on a purchase of $650,000 (i.e., paying reduced stamp duty instead of 100% stamp duty).

First home buyers will also remain eligible for the First Home Owner Grant – $10,000 in metropolitan Victoria for first home buyers of new dwellings and as of 1 July 2017, $20,000 in regional Victoria (see below for more detail).

Accordingly, we expect that this may lead to a deferral of demand, as first home buyers will likely seek to take advantage of the new benefits in July 2017.

2. First home owner grant (FHOG) in regional Victoria

On and from 1 July 2017, the FHOG will be doubled in regional Victoria from $10,000 to $20,000 for properties outside metropolitan Melbourne. The increased grant will be available to first home buyers building new homes valued up to $750,000. The grant will be applicable to contracts signed from 1 July 2017 to 30 June 2020.

Currently, there are 2 separate and individual ways to be eligible for the FHOG:

  1. Buy a new or off the plan home (where the total value must not exceed $750,000); or
  2. Sign a contract to build a new home (where the total price in the building contract must not exceed $750,000, regardless of the land value).

In other words, the land contract date is irrelevant for determining the eligibility for the increased FHOG (i.e., you only receive it for signing a building contract and actually building or alternatively buying an off the plan dwelling (i.e., house and land contract)).

This means that a first home buyer can buy a block of land for $200,000 now and subsequently sign a separate building contract for $750,000 and still be eligible for the FHOG, even though the combined value is $950,000 (as opposed to a single house and land contract where the total price must not exceed $750,000).

Whilst the FHOG can still be accessed, we expect first home buyers of house and land packages or building contracts with a value not exceeding $750,000 will likely defer their acquisitions until July 2017 in order to take advantage of the abovementioned full stamp duty saving (if the dutiable value is up to $600,000) or concessional stamp duty saving (if the dutiable value is between $600,001 and $750,000) being offered.

3. Off the plan stamp duty concession

From 1 July 2017, the off-the-plan concession stamp duty concession will only apply to buyers who occupy the property as their principal place of residence (PPR) and not to investors.

This means that the off-the-plan stamp duty concession calculation will only be relevant to determining the “dutiable value” for the purpose of the new first-home buyer duty exemption (i.e., where the dutiable value is up to $600,000), and the new first-home buyer duty phase-in concession (where the value is between $600,000 and $750,000) and the general PPR duty concession.

We expect that this may lead to a bringing forward of demand as investors seek to take advantage of the existing benefits before the proposed change in July 2017.

4. HomesVic program

From 1 January 2018, around 400 first-home buyers will be given the opportunity to co-purchase a dwelling with the State Government, with the Government to take an equity stake up to 25%, which will in turn reduce the deposit a first-home buyer would otherwise need to save and pay.

This program will be open to couples earning up to $95,000 and singles earning up to $75,000.

Buyers will only need a 5% deposit to be eligible and when the property is sold, the government will recover its share of the equity.

5. Vacant Residential Property Tax (VRPT)

From 1 January 2018, the VRPT will be levied on dwellings that are vacant for more than a total of six months in a calendar year.

The new proposed tax will be self-reporting (i.e., owners of vacant residential property will be required to notify the SRO of any vacant properties that they own) but we expect the SRO to undertake water/electricity usage and other checks to identify/audit/investigate properties where the VRPT should be paid (particularly where owners list an overseas address in their Notice of Acquisition).

The VRPT will apply annually at a rate of 1 per cent of the property’s capital improved value (not just land value), and will be payable on a calendar year basis.

There will likely be specific exemptions, including for holiday homes (owned by those with a principal place of residence in Australia), a city unit for work purposes, properties in deceased estates and homes subject to legitimate temporary absences (e.g. medical care, overseas appointments).

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