Massive changes to stamp duty in Victoria

The Victorian Government announced today, in the 2017-2018 State Budget, that from 1 July 2017:

• Stamp duty will not apply to any property purchased by a first home buyer for under $600,000.
• A discounted rate of stamp duty will apply, on a sliding scale, to any property purchased by a first home buyer for between $600,001 and $750,000.
• The stamp duty concession for investors buying off-the-plan properties will be scrapped – only first home buyers and owner-occupiers will be eligible for a discounted rate of stamp duty.
• A Vacant Residential Property Tax will be introduced, aimed at stopping properties being left “unreasonably vacant”.
• Spouses wishing to transfer ownership of investment property between them will no longer be exempt from stamp duty, effective from 1 July 2017.

Here is the latest official advice from the State Revenue Office.

So, in my humble opinion:

If you are considering purchasing an off-the-property property as an investment, you must sign a contract by 30 June 2017 in order to be eligible for a stamp duty discount. It’s the date you sign a contract that matters, not the settlement date.

If you are considering transferring ownership of an investment property to your partner (“spousal transfer”), this must occur by 30 June 2017 to avoid stamp duty. Capital gains tax may still apply (speak to your accountant).

If you are a first home buyer, no stamp duty will be applicable for purchases of up to $600,000 from 1 July 2017, and there will be a discount on a sliding scale up to $750,000. You must move into the property within twelve months of purchasing. Remember: the demand for properties in the $500,000-$750,000 price range is expected to grow significantly after 1 July, which could inflate property prices well beyond any savings in stamp duty, so it may be better to buy before 1 July. It’s the date you sign a contract that matters, not the settlement date.

More info on the blog on my website.

 

Thanks Kate. Mr Pallas reportedly stated that the idea of transferring investment properties between spouses was to avoid liability to taxation. I am not sure why since, as you note, spousal transfers do not necessarily avoid a CGT event.

 

So transfer of PPOR between spouses still ok?

 

Copied from the sro website

The exact detail of how this will work will be available later. This table gives you a guide on how the concession might work, however, these figures may change once the detail of the concession is finalised.

Example of proposed first-home buyer duty concession
Dutiable value Normal duty Duty after concession
$605,000 $31,370 $1046
$625,000 $32,570 $5428
$650,000 $34,070 $11,357
$675,000 $35,570 $17,785
$700,000 $37,070 $24,713
$725,000 $38,570 $32,142
$745,000 $39,770 $38,444

 

To increase tax deductions by spouse A borrowing to buy from spouse B and claiming the interest in the loan.

Still possible but will have to pay duty.

 

Correct but previously the strategy was beneficial where the CGT liability was nil or very low eg main residence exemption, main residence absence exemption (6 yrs) or the unlimited main residence exemption absence rules where no income was produced. It is quite true that legitimate avoidance had been occurring and the strategies are very well known allowing loans and the costbase to be refreshed. Many taxpayers acquired a share or even 100% of a property from their spouse.

This change likely brings Vic in line with NSW (subject to draft law being released). The degree of the changes need to be seen. If they adopt the NSW method then the rules may also be more onerous to access the concession.

The present NSW position is that provided the property is currently occupied at the time of the transfer as a PPOR then a spouse transfer from ONE spouse (incl defacto etc) may be exempt from transfer duty in two cases:
1. Spouse A transfers / sells etc 50% Tenants in Common to Spouse B; or
2. Spouse A transfers and sells so that Spouse A + B are joint tenants.
So it limits the following :
- Transfers other than 50/50 or joint after change
- Transfers of 100% from A to B.

The NSW transfers are often beneficial where two parties establish a relationship and seek to use one of their homes as an IP. Its often low debt or even debt free. They occupy that and do the transfer and use the main residence exemption. Trivial legal costs and borrowing costs are incurred. Then move to the other property and use the tax deductible proceeds to repay their own home. This issue can be a Part IVA tax avoidance issue if the predominant purpose is to get that tax benefit but there are many reasons other than tax why people seek to do this. Tax advice and legal advice is usually recommended

 

Thanks Terry and Paul.

 

That doesn't give people much time for spousal transfers - does it go from contract date or settlement date?
Our PPOR is 50 /50 and we were planning to transfer my 50% - if our bank was on board with the change in title and the process was straightforward. We have already paid stamp duty - why should my spouse pay again?
We at some stage were going to do this with 2IPS - to avoid the Vic Govs double dipping on land tax as they don't assess you on your 50% share.
I am happy to work hard, happy to contribute my fair share of tax but to keep chopping down those who are trying to be self-sufficient and responsible citizens is annoying.
Maybe they think it will force people to sell properties to outsiders if there is no benefit and people need to release cash?

 

Duty would be the date of transfer I would think but it might be the date of contract - seek legal advice asap

 

Given it's post 1 July and these changes have now come into effect, I can't help but think of the incentive for investors from buying their first property and claiming it to be their PPoR, then privately finding tenants andl renting it out for 12 months.

Doing this would save them up to around $30k stamp duty, cheaper interest rates and also could make the property CGT free under the 6 year rule.
What is the government doing to monitor this?

 

Cross referencing their other data. Postal redirections, licence address, social media posts. Etc etc.

 

They do random audits on this sort of thing too.

 

Fraud is a concern. Both state and commonwealth tax laws contain penalties for false declarations etc. Punishment extends as far as prison or a criminal conviction.

The 6 year absence rule has a fundamental requirement that the taxpayer has occupied the property as their MAIN residence. Ditto the state duty concessions. Agencies all share data and use sophisticated means to identify fraud. Simply put your tenant, a ****** off partner, spouse etc can dob you and fair trading tribunal cases or a mailing address can elevate detection. The OSR used to give focus to rate notices, water notices and similar mail NOT sent to the address. A simple matter like being pulled over by Police with a incorrect license address could even pose a detection issue. After all OSR staff do have access to infrigement processing and all sorts of data base info. The ATO have a massive supercomputer and compile data they share with state govts as part of the GST sharing agreement. The more the ATO detects for the states the less they want in tax handouts !