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Duty Changes in the Victorian Budget

By Michael Patane / 13 June 2019

Key issues:

  • The Victorian 2019-20 Budget announced a number of substantial transfer duty changes effective from 1 July 2019.
  • The duty changes may have a significant impact on clients who are either Victorian based or carry on business in Victoria.
  • It will be interesting to see if any other jurisdiction is tempted to change its corporate reconstruction exemption or introduce other like measures.

The recent Victorian 2019-20 Budget announced a number of substantial transfer duty changes effective from 1 July 2019. The duty changes may have a significant impact on clients who are either Victorian based or carry on business in Victoria: 

  • The current duty exemption for corporate reconstruction for the transfer of dutiable property between group members will be replaced by a 90% concession. Going forward, 10% of the full duty liability will be payable on each intra-group transfer of dutiable property. 
  • The transfer duty payable on the purchase of commercial, retail and industrial properties with valuation property classification codes between 210 to 299 and 310 to 499 in regional Victoria will be reduced by 10% each financial year up to a 50% reduction from 2023 onwards. 
  • The “economic entitlement” provisions, which deem a transfer of dutiable property, will undergo significant changes. Where an entity (such as a developer) enters into an agreement with a landowner in relation to land with an unencumbered value of $1million or more and the entity is entitled to:
    • participate in the income, rents or profits derived from the land;
    • participate in the capital growth of the land; 
    • participate in the sale of the land; or 
    • acquire any of the above entitlements, 

the entity will be liable for transfer duty based on the percentage of the economic entitlement in the land it is deemed to have acquired. Importantly, note that if the agreement does not state the percentage of economic entitlement acquired, the entity is deemed to have acquired 100% of the economic entitlement in the land for the purposes of calculating the transfer duty. The new provisions will apply where the landowner is an individual, company or trustee of a trust. 

  • Fixtures in Victoria, defined as anything that constitutes a fixture at common law or any other items fixed to land, will now be dutiable property and transfer duty payable on the transfer of fixtures when the value of the fixtures is more than $3 million in value.
  • The foreign resident surcharge involving Victorian residential land will be increased from 7% to 8%, bringing the top rate of duty and surcharge duty to 13.5%.

It will be interesting to see if any other jurisdiction is tempted to change its corporate reconstruction exemption or introduce other like measures. 

The following jurisdictions have upcoming 2019-20 Budget announcements:

  • New South Wales Budget - 18 June 2019; and 
  • South Australia Budget - 18 June 2019.

If you have any questions or we can assist with any duty related issues please contact Michael Patane Ext. 7436, Melissa Simpson Ext.7441 or Alexander Pugliese Ext. 7460. 

Authors
Michael Patane
Partner
Michael is a senior and well-respected tax lawyer and a Partner in our Taxation team.
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