By Neil Brennan, Business Advisory Director
Despite warnings of a bursting bubble, property sales in Victoria, particularly in Glen Waverley just recently, show no sign of deflating any time soon. Clearly the influx of foreign investment, 5 per cent in 2011 to more than 30 per cent in 2014, as quoted in the Age, is continuing to tip the supply/demand ratio.
The state government’s new 3% hike in stamp duty for foreign investors may sound like it is aimed at the Chinese investor, justifying the increase as their contribution to the amenities that makes Melbourne so attractive, but it doesn’t only apply to them.
Local investors who have a partner living overseas also fall into the “foreign investor” category. Therefore any property development companies that have one or more shares that belong to a person not residing in Australia are also liable.
In addition properties purchased for a family trust with a family member living overseas may also incur an extra 3% in stamp duty.
Consider a holiday property purchased by a Melbourne family as part of their family trust. If one of the beneficiaries of the trust is a son or daughter living in the UK this trust could be considered a non-resident foreign investor and therefore need to pay an extra 3% stamp duty.
For a one million dollar home, an extra 3% is an extra $30,000 on top of the regular 5.5% stamp duty.
With such a significant increase, it may be worth changing the distribution strategy of your family trust to ensure that the majority of beneficiaries are Australian residents. This will ensure you are exempt from the additional surcharge. You will also be exempted from the increased land tax rate which will be applied to absentee land owners.
There are a number of other considerations depending on the type of purchase such as off the plan or land intended for residential use. Seeking professional advice prior to entering into any property contract from the 1st July 2015 to understand your position is advised.