ByLawyers News and Updates

Land transfer duty benefits

by

By Russell Cocks, Solicitor

First published in the Law Institute Journal

State Revenue Office has announced changes to the benefits available to purchasers of real estate to take effect from 1 July 2017.

Imposition of duty on transfer of land in Victoria is a significant source of revenue for the State government. It is also a significant source of angst for taxpayers and people involved in the real estate industry. Changes to the duty regime are often seen as levers for economic development and as such those changes are usually designed to achieve a politically beneficial outcome for the government.

The issue of housing affordability, particularly for first home buyers, is a hot button political issue and the duty changes are targeted at that demographic. The changes apply to contracts of sale after 1 July 2017, which may mean that the months of May and June will be ‘slow’ in this marketplace, followed by substantial uplift from July onwards.

Traditionally a first home buyer needs a minimum of the 10% deposit. Given that duty on a purchase of $500,000 is in the range of 5% the government impost is half of that hard fought for deposit. Granting an exemption or concession in relation to duty should therefore provide a substantial impetus for sales. The contrary argument is that it will simply bring more people into the market and effectively increase the price of housing by the amount of the benefit. This dispute between supply/demand will no doubt continue to occupy the attention of economists but we lawyers will move on to the practical consequences of the changes.

FIRST HOME BUYERS – both new and established homes

Full exemption for purchase price up to $600,000.

Reducing concession between $600,000 and $750,000 (no concession at $750,000).

Requirements:
  1. Purchaser and partner must qualify as ‘first home buyers’; and
  2. Purchaser must be an Australian citizen or permanent resident; and
  3. Purchaser must use property as Principal Place of Residence for a continuous period of 12 months commencing within 12 months of possession.

Importantly in the new home market, the ‘dutiable amount’ is calculated after taking into account deductions relating to the cost of construction post-contract.

One segment of the new home market is based on the first home buyer purchasing the land and then entering into a separate building contract for construction. In this case the dutiable value is based on the land contract and will normally come within the full exemption available up to $600,000. However another method has the first home buyer enter into a land and building contract for the total value of the land and construction. This may have a contract price above the $600,000 threshold but the exemption is available if the value of the land as at the date of the contract is below $600,000. Adopting the Fixed Percentage Method of allocating value in such cases will mean that the full exemption will be available so long as an amount equal to 55% of the contract price is below $600.000, allowing for total contract prices of well over $1m.

This takes us into the realms of:

OFF THE PLAN SALES

Substantial duty concessions have always been available in Victoria in relation to off the plan sales. The availability of this concession is to be limited after 1 July 2017 to properties to be used by the purchaser as their principal place of residence.

The concession is available where the dutiable value of the property is less than $550,000. Importantly, the calculation of dutiable value allows for deduction from the contract price of an amount that represents the value of construction to be undertaken after the date of the contract and prior to settlement. The Fixed Percentage Method of calculation of post-contract construction cost allocates cost as follows:

Single dwelling
  • Construction cost 45%
  • Land component 55%
Multi-lot
  • Construction cost 60%
  • Land component 40%
High rise
  • Construction cost 75%
  • Land component 25%

If a purchaser signs a contract before any construction commences the dutiable value will be below the $550,000 threshold provided that the contact price is less than:

  • Single dwelling $1,000,000
  • Multi lot $1,375,000
  • High rise $2,200,000

and duty will be calculated at the concession rate available to purchasers who intend to occupy the property as their principal place of residence.

The concession that was previously available for investment properties and commercial developments will cease as at 30 June 2017 and the concession will only apply to owner-occupied properties.

VIC – State Revenue Office amendments

by

From 1 July 2017:

  • exemption of transfer duty for transfers between spouses is only available for principal place of residence. Transfers following breakdown of relationship are unchanged and the exemption continues to apply to all properties.
  • off-the-plan duty concession is restricted to properties acquired by owner/occupiers who are eligible for the principal place of residence or first home buyer duty concessions.
  • First Home Buyers:
    • Who purchase a property to the value of $600,000 will pay no duty, with concessions available for properties between $600,000 and $750,000.
    • Who purchase in regional Victoria a new home to the value of $750,000 may apply for the First Home Owner Grant of $20,000. Criteria includes the property must be the applicant’s principal place of residence for a continuous period of 12 months, moving in within 12 months of completion.
    • From 27 June 2017 Australian Defence Force personnel enrolled to vote in Victoria on duty or on leave are exempt from the residence requirement for the First Home Owner Grant.

Land Tax

From 1 January 2018, vacant residential properties in the inner and middle ring of Melbourne will be subject to a vacant residential land tax of 1 per cent of the property’s capital improved value. A property will be considered vacant if it is unoccupied for six months or more in a calendar year. The six months does not need to be continuous. There are exemptions for many properties including for vacant land.

 

From 1 July 2017 – Foreign Resident Capital Gains Withholding Payments

by

For contracts entered into on or after 1 July 2017 the new foreign resident capital gains withholding (FRCGW) rate and threshold will apply to:

  • real property disposals where the contract price is $750,000 and above (currently $2 million); and
  • the FRCGW withholding tax rate will be 12.5% (currently 10%).

All precedents and commentaries were updated to reflect these changes.

Wills January 2017

by

New Commentary. Challenging a will questions its validity. Contesting a will questions the fairness of its provisions. The circumstances and processes when challenging a will are similar across all the states in legislation and in the common law principles that govern this interesting area of the law. This addition to commentary covers helpful tips for practitioners if they are faced with a client wishing to challenge the validity of a will.

Foreign Resident Capital Gains Withholding Payment

by

Early Alert – Foreign Resident Capital Gains Withholding Payment

It is proposed that from 1 July 2017 the regime will apply to all real property with a market value of $750,000 or above. Once the bill is law this alert, the commentary and precedents will be updated.

Practice management – superannuation

by

FROM 1 JULY 2017 Concessional Contributions Cap for superannuation reduced to $25,000 for all ages. Before-tax contributions include compulsory employer contributions and salary sacrifice arrangements. Contributions greater than $25,000 from before-tax income may mean payment of extra tax.

Music copyright

by

Following a recent mentor question the Sale & Purchase of Business commentary in all states was updated to discuss the licensing requirements  for business owners when playing background music in their businesses. Amendments were also made to the Retainer Instructions in each state.

WILLS AND POWERS OF ATTORNEY VIC

by

Wills and Powers of Attorney

MAY 2017
  • Commentary updated to take into account changes introduced by Powers of Attorney Amendment Act 2016 and Powers of Attorney Amendment Regulations 2017. See commentary and article ‘Powers of Attorney – Evolution’. Changes include:
    • impact of new enduring power of attorney on previous powers;
    • clarification of the number of alternative attorneys that can be appointed;
    • forms updated in line with substituted forms as introduced by amending regulations.
  • Commenced 1 May 2017.
JANUARY 2017
  • New Commentary on Challenging the validity of a will
    • Challenging a will questions its validity. Contesting a will questions the fairness of its provisions. The circumstances and processes when challenging a will are similar across all the states in legislation and in the common law principles that govern this interesting area of the law. This addition to commentary covers helpful tips for practitioners if they are faced with a client wishing to challenge the validity of a will.
  • Updated information on LIV Capacity Guidelines and Toolkit
OCTOBER 2016
  • Powers of Attorney Commentary- Author update regarding witnessing execution by the attorney.
  • Costs Agreements
    • Included reference to time limit for bringing costs assessment, total estimate of legal costs section with provision for variables, and authority to receive money into trust.
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
  • Wills Commentary – Author update regarding superannuation as part of the estate.
JUNE 2016
  • Added new precedent – Individual will creating multiple testamentary discretionary trusts
  • Case law – Succession has been enhanced with addition of discussion on Badenach v Calvert re duty of care to intended and disappointed beneficiaries.
MAY
  • Added to commentary – New content re Interstate powers of attorney and Interstate instruments.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH
  • Commentary enriched to include a new section ‘What an attorney can’t do’. Commentary also enriched to include Instruments made in other states
FEBRUARY
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.

Connect with us