State Tax Alert //2019-2020 Victorian State Budget announcements

The Victorian 2019-20 State Budget made a number of significant revenue raising changes which will impact on clients who own property in Victoria:

  • from 1 January 2019, property land tax valuations will be updated annually instead of bi-annually which will affect the charging period for 1 January 2020
  • the annual land tax surcharge for foreign owners rises from 1.5% to 2% from 1 January 2020 on-wards which applies to all Victorian land, not just residential
  • the foreign purchaser duty surcharge on residential properties purchased on or after 1 July 2019 will rise from 7 to 8% in addition to the land duty payable, which will give rise to a top duty rate of 13.5%
  • vacant land attached to a principle place of residence on a separate title that is currently exempt from land tax will no longer be exempt from the 1 January 2020 land tax year
  • an amendment has been made to the ‘economic entitlement’ provisions of the land transfer duty rules to overturn the effects of a recent Supreme Court case

Bentleys comment

Property developers
Of note is the effect of changes to the ‘economic entitlement’ provisions of the land transfer duty rules. The effect will make many property developers subject to duty immediately on entering into a property development agreement for Victorian land even if they do not take ownership of the land itself.

The charge arises because Victoria recognises ‘economic entitlement’ as a charging event for duty purposes, not the transfer of the land itself, and a recent court case restricted how this was interpreted.

The Government responded by expanding the definition to protect the revenue base, and the impact on property developers (individuals, companies and trusts of all types) could be wide ranging.

If you already own or are seeking to acquire property for development in Victoria you will need to take urgent advice on the impact of the changes.

Property investors
In line with other States such as New South Wales, the wide definition of a foreign owner or purchaser for the additional land tax and duty surcharges includes certain discretionary trusts and companies.

Broadly a discretionary trust with at least one specified beneficiary who is an absentee person, or a company controlled by an absentee person may be treated as a foreign owner creating a surcharge liability. Ensuring trust deeds or company ownership structures have not inadvertently caused foreign ownership will be important to avoid the additional surcharges.

We recommend you contact your Bentleys advisor to review your proposed or existing structures to assess the impact of these changes.