INTRODUCTION
New legislation has been passed by the Victorian Government which provides that where an interest in a residential property is transferred to a foreign purchaser after 1 July 2015, the foreign purchaser is required to pay an additional duty of 3% of the full contract property value (the additional duty) for their share in that property, unless an exemption applies. This means foreign purchasers may have to pay to the Victorian Government a total duty as high as 8.5% of the purchase price and is something that most purchasers are unaware of.

WHEN YOU ARE REQUIRED TO PAY
For a person to be required to pay the additional duty, they must:

  1.  Be a foreign purchaser; and

A foreign purchaser is defined as anyone who is a foreign natural person, a foreign corporation or a trustee of a foreign trust.
A foreign natural person is anyone who is not:
1. A citizen or permanent resident of Australia;
2. The holder of a permanent visa within the meaning of section 30(1) of the Migration Act 1958 (Cth); or
3. A New Zealand citizen with a Special Category Visa (Subclass 444).
Even where a foreign natural person purchases a property with their spouse who is not a foreign purchaser, they are still required to pay the additional duty for their interest in the property. This duty is assessed on the purchase price provided at settlement.

EXAMPLE 1.
Sarah is an American citizen who holds a Partner (Provisional) Visa allowing her to stay in Australia until her permanency is decided. Sarah and her partner Ben, who is an Australian citizen, decide to purchase a house in Melbourne at a dutiable value of $500,000.00 with each party contributing $250,000. As required by the new legislation, Sarah is required to pay an additional $7,500 (3% of $250,000) in additional duty.

EXAMPLE 2.
If the purchase of the above example was an off the plan purchase, and the value of land and the building in existence at the date of the contract is $100,000 but the full contract purchase price is $500,000, then the value of the additional stamp duty will be based on the full contract purchase price of $500,000 even though the ordinary stamp duty will be based on $100,000.

2. Have received an interest in a residential property.

This interest can be received in the following ways:
a. Purchase of a residential property;
b. A gift of a residential property;
c. A transfer of a residential property from a deceased estate; and
d. Certain leasing arrangements.
A residential property is defined as either (a) a building on a property designed and constructed primarily for residential purposes, or (b) a property which will have constructed a building designed primarily for residential purposes. In respect of commercial property, the additional duty does not apply unless it is primarily used as a residential property.

EXEMPTION AND CONCESSIONS
An additional duty will only be payable where a land transfer or land holder duty is payable. If an interest holder in residential property is not required to pay the land transfer duty, then by default, they will not be required to pay the additional duty regardless of whether they are a foreign purchaser or not. Foreign purchasers, however, are not entitled to any duty concessions or concession rates on any additional duty that is payable, even if they are eligible for duty concessions on the initial duty payable.

EXAMPLE 3
Leah, a foreign purchaser, has just purchased a residential property off-the-plan for $400,000 (existing land and building value at date of contract $100,000) which she intends to use as her principal place of residence (PPR). Leah is not eligible for the PPR as she is not an Australian citizen and is eligible for the off-the-plan concession on the land transfer duty payable.
However, even though Leah is eligible to these concession, she must still pay the normal stamp duty based on the value of $100,000 and additional duty of 3% of the dutiable value of $400,000 of the property under these provisions.

NOMINATIONS AND SUB-SALE EVENTS
Where a foreign purchasers is nominated by a title holder after 1 July 2015 and the nomination triggers a sub-sale, that foreign purchaser must pay the additional duty even if the original contract date was before 1 July 2015. This ‘nomination trigger’ will also apply where the transfer occurs under an off-the-plan contract.
If nominations do not trigger a sub-sale (i.e. the transaction involves no consideration passing between the parties and no land development), contracts entered into before 1 July 2015 will not attract the additional duty.

EXAMPLE 4
Kevin purchased a residential property in St Kilda for $500,000 off-the-plan; construction has commenced and the residence is due to be complete in March 2016. The contract was signed by Kevin on 20 February 2015. On 2 February 2016 Kevin nominated his new girlfriend Mary to take a transfer of the residential property for $200,000. Mary must now pay additional duty of 3% of the dutiable value of $200,000 on top of the initial transfer duty payable.

SUMMARY
The imposition of the additional duty payable by foreign purchasers means they may be liable for a total of 8.5% once the transfer of the residential property has occurred. The additional 3% is on the contract build value and may be overlooked by inexperienced conveyancers and can really hurt one financially when they do not expect it. Always ensure when purchasing property you have an experienced and reliable conveyancer who is aware of and keeps up to date with the law. There may be some strategies a purchaser planning should be obligated at the time of purchase that should also be discussed.

If you have any queries regarding any of the above, please contact Anthony Pointon or Laszlo Konya.

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