By Jonathan Tisher

7 May 2015

The Victorian Government has announced the introduction of a 3% surcharge to apply to all foreign purchasers when they purchase residential property. The surcharge will be a further payment in addition to any stamp duty that would be payable.

This change will apply for any Contracts entered into on or after 1 July 2015.

The practical impact for a foreign investor is that if they purchase property exceeding $960,000, they will effectively be paying duty at the rate of 8.5% as opposed to 5.5%. To work out the extra duty payable, the 3% will be applied on the higher of the consideration (purchase price) and the market value of the property as at the date of the Contract. However, it is not yet clear how this additional 3% surcharge will be applied on off the plan sales where there is concessional stamp duty. Further information will be released on this in due course.

Furthermore, as an unrelated charge, the Victorian Government will also be imposing a 0.5% land tax surcharge for absentee owners. This charge will apply from the 2016 land tax year onwards. An absentee landowner is defined as a landowner who does not ordinarily reside in Australia.

The practical financial impact of these changes is that foreign purchasers may elect to pay a lesser figure for the purchase of any residential property to take into account the surcharge that will now be payable and the increased land tax payable. In addition, developers will need to take into account the impact that these taxes may have on sales to foreign investors overseas (which will need to be factored into any feasibilities).

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