Following a significant delay in what has been a severely disrupted year, the Victorian Government delivered its State Budget for 2020-21 on 24 November 2020.
The Budget made headlines delivering both record spending and tax cuts of $49 billion and a record budget deficit forecast of $23.3 billion.
On the taxation front, the Victorian Government eschewed announcing major tax reforms such as those proposed by the NSW Government in its recent budget, relying instead on major tax cuts to kick-start the Victorian economy following a long pandemic lockdown. This includes:
- stamp duty waiver of 50 percent for a transfer of new residential properties, and 25 percent for existing residential properties, with a dutiable value of up to $1 million. This applies to contracts entered into from 25 November 2020 to 30 June 2021. The waiver does not extend to foreign purchaser additional duty; and
- 50 percent land tax discount on build-to-rent development projects from 1 January 2022 to 1 January 2040. A full exemption from the absentee owner surcharge would also be available for eligible projects.
The precise detail of the above measures is not yet available. It appears likely that the temporary stamp duty waiver for properties under $1 million will be affected by way of a Treasurer’s direction to the Commissioner for emergency tax relief measures, although one might expect an 18-year land tax discount regime to be legislated. If usual tax cycles are followed (after a highly unusual year), the build-to-rent measures may not be legislated until around May 2021 at the earliest, and the industry may need to agitate for earlier clarity on the eligibility criteria.
In the meantime, the State Taxation Acts Amendment Bill 2020 (Vic) (Bill) contains a number of other notable stamp duty and land tax amendments, proposed to take effect the day after Royal Assent is received.
50 percent stamp duty concession for eligible properties in regional Victoria from 1 July 2023 (announced in 2019-20 Budget).
50 percent stamp duty concession for eligible properties in regional Victoria brought forward to 1 January 2021.
A partner in a partnership is taken to have beneficial ownership of each item of partnership property in the same proportion as their partnership interest.
Deemed beneficial ownership will also apply through multiple layered partnerships.
Dutiable property was extended in 2019 to include an interest in fixtures that is created, dealt with or held separately from an estate or interest in the land on which the fixtures are located.
A security interest in fixtures is excluded from being dutiable property (consistent with a security interest in other dutiable property).
For the purposes of the corporate restructure relief rules, ‘corporate consolidation’ means the interposition of a company above a corporate group for the formation of a consolidated or consolidatable group for income tax purposes.
‘Corporate consolidation’ will mean the interposition of a company above a corporate group for the formation or continuation of a consolidated group for income tax purposes.
For the purposes of the corporate restructure relief rules, ‘corporate group’ is a static concept. Any change to the ownership structure can break the same corporate group requirement.
A new ‘substantially the same corporate group’ concept will be introduced, where the group’s membership is the same except for the addition or omission of one or more subsidiaries of the parent corporation.
Subsequent eligible transactions under a corporate reconstruction within 30 days of the first eligible transaction are exempt from duty.
Subsequent eligible transactions involving a corporate reconstruction or corporate consolidation of the same corporate group, or substantially the same corporate group, within 30 days from the first eligible transaction, are exempt from duty.
Special land tax is a one-off tax charged in certain circumstances where land that has been exempt from land tax is no longer exempt.
Special land tax will be abolished.
Concessional land tax rate applies to land owned and solely occupied by clubs that provide for the social, cultural, recreational, literary or educational interests of their members.
Land owned and solely occupied by clubs that provide for the social, cultural, recreational, literary or educational interests of their members will be exempt from land tax.
However, the concessional rate will continue to apply to land that is owned and solely occupied by clubs promoting horse racing or harness racing.
Unpaid land tax is a first charge on land.
Any unpaid interest and penalty tax will also be a first charge on land.
The Commissioner can recover any unpaid land tax from a lessee, mortgagee or occupier of the land.
The Commissioner will also be able to recover any unpaid interest and penalty tax from a lessee, mortgagee or occupier of the land.
An owner, purchaser or mortgagee can apply for a land tax certificate, which shows the amount of land tax that is due and unpaid.
An owner, purchaser or mortgagee can apply for a property tax certificate, which will show the amount of land tax that is due and unpaid, and any interest and penalty tax due and unpaid.
1. Duty concession for industrial or commercial land in regional Victoria
The Victorian Government announced on 13 September 2020 as part of its coronavirus relief measures that the 50 percent duty concession for transfers of certain property in regional Victoria would be brought forward. The Bill includes the amendments necessary to implement this measure.
To be eligible, the property must be used solely or primarily for commercial, industrial or extractive industry purposes (based on Australian Valuation Property Classification Codes), and applies where the contract, agreement or arrangement for an eligible transfer is entered into on or after 1 January 2021. Taxpayers who are negotiating the sale and purchase of commercial or industrial properties in regional Victoria should consider the timing of their transaction.
2. Application of partnership provisions to multiple layered partnerships
Following Danvest Pty Ltd v Commissioner of State Revenue  VSCA 382A, the Duties Act 2000 (Vic) was amended to deem a partner in a partnership to have beneficial ownership of each item of partnership property in the same proportion as the partner’s partnership interest.
These provisions are proposed to be amended to effectively look through layers of partnerships so as to charge duty on an indirect transfer of dutiable property held in a partnership. Broadly, a partner of a partnership (Partnership A) that in turn holds an interest in a downstream partnership (Partnership B), will be considered to be a beneficial owner of the assets of the downstream partnership (Partnership B) commensurate with the partner’s proportionate interest in Partnership B by virtue of its interest in Partnership A.
3. Fixtures, including items that are fixed to land
Generally, a security interest in dutiable property is not itself dutiable property. However, the current exclusion does not extend to a security interest in fixtures (which includes items that are fixed to land even if they are not general law fixtures). Amendments have been proposed to clarify that a security interest in fixtures (including items fixed to land) are not dutiable property, in line with the treatment of security interests generally. Unfortunately however, there is no further clarity on the meaning of ‘fixed to land’.
4. Corporate restructure stamp duty relief
A number of changes have been proposed to the corporate restructure relief rules, including:
- Stamp duty relief will not be available for a transfer under an agreement made before the vendor and purchaser are members of the same corporate group. This includes an ‘agreement’ that is a put and call option arrangement, or under which a person obtains a transfer right under the sub-sale provisions.
- Stamp duty relief will be extended to the interposition of a new head entity in circumstances where there is a continuation of an existing consolidated group for income tax purposes (and not only where a new consolidated group is formed). The ‘top-hatting’ of an existing group should therefore qualify for relief. However, relief will no longer be available where there is merely a consolidatable (but not consolidated) group.
- New concepts of ‘arrangement’ and ‘substantially the same corporate group’ will be introduced. This should broaden the ability to claim an exemption where the same interest in dutiable property is transferred multiple times under a series of restructure steps occurring within 30 days of the first eligible transaction, in circumstances where one or more subsidiaries has been added or removed from the group. The exemption should also be available where the same interest is subject to both a corporate reconstruction and corporate consolidation within the 30 day period.
- An integrity measure will be introduced to deem a private company that has been interposed between a private unit trust and its unitholders, and any successor of that head company, as a private unit trust for three years after the interposition. The deeming provision means that a lower 20% acquisition threshold applies in determining whether a liability arises on an acquisition of that company (instead of the 50% threshold usually applicable to companies).
These amendments to the corporate restructure relief rules introduced in 2019 serve as a reminder that these rules are highly mechanical. Taxpayers should not assume that stamp duty relief will be available in all internal reorganisations.
1. Abolition of special land tax
The abolition of special land tax has been proposed. This tax (5% of site value) is currently levied when certain exempt land (for example, land owned by a public statutory authority or sporting, recreational or cultural land) ceases to be exempt land, for example as a result of a change in use or change in ownership. Taxpayers involved in an affected transaction should consider the timing of their transaction.
2. Not-for-profit clubs
From 1 January 2021 (assuming that the proposed amendments become law before 31 December 2020), a land tax exemption will be available for land, or a part of land, owned and solely occupied by clubs that provide for the social, cultural, recreational, literary or educational interests of their members. This will replace the current land tax concession available to such clubs.
The concessional rate of 0.357% will continue to apply to land that is owned and solely occupied by clubs promoting horse racing or harness racing.
3. Penalty tax and interest on unpaid land tax
Any unpaid interest and penalty tax will be included as a first charge on affected land. In addition, the Commissioner will be able to recover any interest and penalty tax on unpaid land tax from a lessee, mortgagee or occupier of the land. These amendments will extend existing provisions which apply only to unpaid land tax.
4. New property clearance certificates
An owner, purchaser or mortgagee of land can currently apply for a land tax certificate which shows if there is any land tax due and unpaid on the relevant land. If a purchaser obtains such a certificate, any amount of land tax in excess of the amount shown on the certificate is not secured by the Commissioner’s first charge on the land.
The Bill proposes to replace the current land tax clearance certificates with new property clearance certificates. In addition to showing any unpaid land tax on the land, the new certificates will include details of any interest and penalty tax. Other than that, it remains to be seen what, as a practical matter, will be different about the new certificates.
The certificate might potentially include information about any land tax that has been assessed but not yet due, land tax that is yet to be assessed for the year in which the certificate is issued (ie the current year), and any other debt recoverable under any law for which the Commissioner has the power of general administration.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.