2017/2018 State and Federal Budgets: new and revised taxation measures

1. Proposed Vacant Residential Land Tax (VRLT)

The Victorian Government recently announced a proposal for vacant residential land tax. These changes are contained within Part 4 of the State Taxation Acts Amendment Bill 2017 (Vic) (‘the Bill’) and will alter the Land Tax Act 2005 (Vic). The Bill is expected to be passed in June 2017.

How will the tax work?

• The VRLT will be a tax on property owners who own vacant residential property.
• A residential property is vacant if it is unoccupied for more than six months in a calendar year and the period of six months not need be continuous.
• The VRLT will be an annual tax of 1% of the capital improved value of the relevant taxable property. More information will be available in due course.

Affected areas:

The VRLT will apply from 1 January 2018 and will only apply to vacant residential properties located in the following local areas:

• Banyule
• Bayside
• Boroondara
• Darebin
• Glen Iris
• Hobsons Bay
• Manningham
• Maribyrnong
• Melbourne
• Monash
• Moreland
• Port Phillip
• Stonnington
• Whitehorse
• Yarra

It is proposed that vacant residential properties outside these local council areas will not be subject to VRLT.

Exemptions:

• The Bill provides an exemption for mortgagees in possession in clause 34E(2) from payment of the VRLT.
• The Bill also includes specific exemptions with qualifying criteria.
• The exemptions include:
  • Holiday homes (owned by those with a principal place of residence in Australia);
  • Properties used for work purposes for an aggregate period of at least 140 days
  • Land that has changed ownership in the preceding tax year; and
  • Land that is ordinarily exempt from land tax.

2. Changes to the CGT Withholding Regime

From 1 July 2017, the Federal government has announced in the Federal Budget that the following changes to the current CGT withholding regime for foreign tax residents will take effect:

(a) Increase in CGT withholding rate:

• The amount of the purchase price which will be withheld will increase from 10% to 12.5%

(b) Decrease in CGT withholding threshold:

•  Currently, a vendor only needs to supply a CGT withholding clearance certificate if the purchase price exceeds $2 million.
•  From 1 July 2017, any sale of a property for $750,000 or more will require a CGT clearance certificate to be provided.
•  If this certificate is not provided, the purchaser will be required to remit 12.5% of the purchase price to the ATO.

Whilst acting for lenders, we will be able to apply for and supply the purchaser’s legal representative with this certificate. In order to do so we will require the following information: the borrower’s date of birth, telephone number, email address, current address and tax file number.

We will also require the following additional borrower information to obtain a CGT withholding clearance certificate:

•   whether the borrower’s residency status has changed since their last tax return or whether it will change prior to settlement;
•   whether the borrower has lodged an Australian tax return in the last two years; and
•   whether the borrower is holding the property on behalf of a foreign resident or on behalf of other entities that include a foreign resident.

It is expected that a significant number of sales conducted by lenders will now be affected by this proposal and therefore impose a significant administrative burden in the secured recovery context.

We will keep you informed of further developments. For further information please contact Malcolm Watson on (03) 9612 8218 or your usual contact.