Victorian Budget 2021-22: Significant duty changes to be introduced

The Victorian budget was delivered on 20 May 2021 and included a number of significant measures including proposed increases in the rates of stamp duty, land tax and payroll tax as well as the proposed introduction of certain temporary exemptions and concessions.

Further detail was set out in the State Taxation and Mental Health Acts Amendment Bill 2021 (Duties Amendment Bill), of which we have summarised some of the key proposed changes in respect of stamp duty, land tax and payroll tax below.

Separately the Victorian Government announced prior to the budget that they would look to introduce a new windfall gains tax on profits made by landowners where those profits are made as a consequence of planning decisions to rezone ex-industrial land, or create new residential estates. While this proposed change was not included as part of the Duties Amendment Bill, please see our previous article for further information.

Stamp duty

Broadly, the main proposed Victorian stamp duty changes include:

The introduction of a premium "general" rate of stamp duty of 6.5% for "dutiable transactions" with a "dutiable value" above $2 million (ie. an increase in the previous highest "general" rate of 5.5% which will instead only apply to "dutiable transactions" with a "dutiable value" of between $960,000 to $2 million);

A temporary increase in the threshold for the existing "off-the-plan" concession to $1 million for certain "off-the-plan" contracts entered into from 1 July 2021 to 30 June 2023 where the relevant criteria are satisfied;

A temporary stamp duty:

• exemption for transfers of "eligible property" (being a new home within the City of Melbourne that has a "dutiable value" of $1m or more) where:
• the occupancy permit has been issued for the home, for at least 12 months prior to the relevant purchase contract being entered into;
• the relevant purchase contract has been entered into between 21 May 2021 and 30 June 2022; and
• the home has not previously been occupied or sold as a place of residence or occupied for the provision of short-term accommodation;
• concession of 50% for transfers of "eligible property" where:
• the relevant purchase contract is entered into between 1 July 2021 to 30 June 2022; and
• the transfer is not otherwise eligible for the aforementioned full exemption (ie. such as where it has not been in existence for at least 12 months prior to the relevant purchase contact); and

An exemption for certain "shared equity arrangements" (ie. which broadly includes an arrangement involving the State where the State contributes to the purchase of certain homes or land on which a relevant home will be affixed, and takes an equitable interest in the home or land).

While the new premium "general" rate of duty will apply to relevant "dutiable transactions" such as a transfer of land with a "dutiable value" above $2 million, it will also apply to relevant acquisitions in "landholders" (ie. which in broad terms are certain acquisitions of shares / units in companies / unit trusts which hold relevant Victorian landholdings with a market value of $1m or more) if the market value of those landholdings is $2m or more.

Further, a "foreign purchaser" could potentially pay Victorian stamp duty at the rate of up to 14.5% on purchases of residential land (ie. the "general" rate of 6.5% and the foreign purchaser surcharge rate of 8%).

Under relevant transitional provisions in the Duties Amendment Bill, any "dutiable transaction" or relevant acquisition of an interest in a "landholder" that occurs on or after 1 July 2021 under an agreement or arrangement entered into on or before 30 June 2021 will not be subject to the new rate of stamp duty. Interestingly, the transitional provisions do not require the aforementioned contract or arrangement which is entered into on before 30 June 2021 to be completed within any specified time frame.

Land tax

Broadly, the main proposed Victorian land tax changes include:

• an increase in the general land tax rate for relevant landholdings with a taxable value between $1.8 million to $3 million from 1.3% to 1.55%;
• an increase in the general land tax rate for relevant landholdings with a taxable value of $3 million and above from 2.25% to 2.55% (ie. noting that an "absentee" could potentially pay Victorian land tax at the rate of up to 4.55% (ie. the "general" rate of 2.55% and the absentee surcharge rate of 2%));
• an increase in the threshold for when land tax becomes payable from $250,000 to $300,000;
• in relation to land owning structures involving partnerships, a partner is taken to have a beneficial interest in each item of partnership property in the same proportion as the partnership's interest (ie. these amendments are intended to align with similar partnership provisions which were introduced into the Duties Act 2000 in 2018 following the decision in Commissioner of State Revenue v Danvest Pty Ltd [2017] VSCA 382); and
• extending the exemption for vacant residential land tax for new developments to apply for up to 2 land tax years where the land has not been used or occupied and has not changed in ownership (ie. it is intended to allow developers more time to build without being subject to additional land tax).

Payroll tax

Broadly, the main proposed Victorian payroll tax changes include:

• the introduction of the mental health and wellbeing surcharge - a new payroll tax surcharge from 1 January 2022;
• raising the payroll tax annual threshold from $650,000 to $700,000 from 1 July 2021 (ie. instead of from 1 July 2022); and
• a reduction in the payroll tax rate for regional employers from 1.62% to 1.2125% from 1 July 2021.

The key proposed change is the new mental health and wellbeing surcharge, which will be payable by employers or groups of employers with total Australian (ie. Victorian and interstate) wages of $10 million or more in a financial year. As indicated by its name, the surcharge is intended to be used to fund mental health reform and outcomes in Victoria. The surcharge is 0.5% for employers or groups with total Australian wages exceeding the threshold of $10 million but less than $100 million. For employers or groups with total Australian wages exceeding the threshold of $100 million in wages, the surcharge will be an additional 0.5% (ie. in total 1%). In broad terms, the surcharge will be payable on taxable Victorian wages exceeding the relevant threshold applicable to the employer or group. Importantly, affected employers will need to ensure they comply with any applicable compliance obligations.

The lifting of the payroll tax annual threshold was brought forward from 1 July 2022, and together with the reduction in the regional payroll tax rate, is proposed to provide relief to small and regional businesses.