If you’re a foreign investor purchasing a residential property in Victoria, then from 1 July 2015 you will be faced with an additional 3% stamp duty surcharge, on top of the 5.5% existing duty.
This additional surcharge was first announced in the Victorian 2015-16 Budget and was introduced into the Victorian Parliament on 5 May 2015 and came into effect on 1 July 2015.
Foreign investors purchasing residential property will now have to fork out 8.5% in duty surcharges and this change will increase the transaction costs for foreign investors buying residential property in Victoria.
This additional duty will be calculated at the rate of 3% of the dutiable value of residential property acquired and will be payable on all contracts, transactions, agreements and arrangements entered into on or after 1 July 2015 by foreign purchasers. This duty will usually occur at settlement and foreign investors will have 30 days to make this payment.
So, for a property valued at $500,000, a foreign investor will now have to pay an additional $15,000 in stamp duty.
There are three circumstances where the additional 3% duty will apply. These are:
- The acquisition of residential property by a foreign purchaser;
- The acquisition of a non-residential property by a foreign purchaser where there is a later change in intention to use the property as a residential property. In this circumstance the foreign purchaser must lodge a statement with the Commissioner within 14 days of forming the relevant "intention", with the liability for payment arising within 30 days of the intention being formed;
- A relevant acquisition under the landholder provisions (e.g. 50% interest or more for private companies and 20% or more for unit trusts) by a foreign purchaser, of an interest in a landholder that owns residential property.
This measure also applies to acquisitions of interests by foreign purchasers in landholders with land holdings comprised of residential property.
So who is classed as a “foreign investor”?
A foreign investor is classed as any of the following:
- Foreign natural person - a person who is not an Australian or New Zealand Citizen or is not a permanent visa holder.
- Foreign corporation - a corporation that is incorporated outside Australia or an Australian incorporated company where a foreign purchaser has a controlling interest in that company (more than 50% shareholding).
- A Trustee of a foreign trust - a trust in which a foreign purchaser has a 'substantial interest' (more than 50% of capital entitlements) in the trust estate.
Purchasers will also need to complete and lodge the new Purchaser Statement
with the transfer of land instrument.
Whilst there are stamp duty concessions available, these do not apply to a foreign purchaser in respect of the 3% additional duty.
Many of the foreign investors who buy in Australia are from China, with China spending $12.4 billion in 2013-14 on foreign investment, up from $5.9 billion the year before. It is forecast that this new scheme will raise approximately $279 million over four years.
According to a survey done by the National Australia Bank, foreign demand for new properties in Victoria has increased from about 5 per cent in 2011 to over 30 per cent at the end of 2014.
With Melbourne highlighted as the most liveable city in the world for the fourth year running by the Economist Intelligence Unit’s liveability survey, people are definitely keen on living here, and this additional duty will ensure everyone contributes accordingly.
During 2013-14 financial year, foreign investors invested $14 billion in Victorian property, up from just $5.8 billion the previous year which is a massive leap, whilst the number of approvals for foreign buyers of new Australian homes more than doubled in 2014-15 according to the Foreign Investment Review Board.
Some experts believe this extra surcharge will actually discourage foreign investment, which Australia heavily relies on, especially for new residential developments to get the go ahead, whilst others believe foreign investors should have to pay more.
Published on 9th of July 2015 by Marty Stanowich