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The state of Victoria, specifically its capital Melbourne, has many high-rise and multi-occupancy residential developments completed and ongoing. Regeneration and redevelopment projects resulting in high-rise skyscrapers have dramatically changed Melbourne’s skyline in the past decade. Such multi-occupancy residential developments, often referred to as strata properties, are offered for sale before the building was completed or even started its construction. Purchasers can only rely on the development plans for the building when signing their purchase contract. This form of property purchase is referred to as “off-the-plan purchase”, as opposed to usual properties where the property has completed construction, is registered and is sold as-is. This article discusses the concessions available for land transfer duty (stamp duty) for off-the-plan purchases.

Dutiable Value

The starting point of calculating stamp duty is to ascertain the dutiable value of the property. Usually, for all types of property, dutiable value is the higher value between the market price and the contract price. For practical purposes the contract price is usually the market price when you are buying on the open market (as opposed to selling between related parties). Situations when the dutiable value of the property is different from the contract price would be transactions between related parties for example, where the property may be sold at a price lower than the market value of the property.

For off-the-plan situations, this dutiable value may be affected by concessions. If the off-the-plan concession is applicable, the dutiable value will be lowered and the amount of stamp duty will be lowered. Should the off-the-plan concession apply, the dutiable value of the property will be the contract price minus construction and development costs spent by the developer on constructing the property after the contract date. If the property has not started its construction yet at the time of signing the contract, the construction costs may be form a large proportion of the contract price and the dutiable value of the property may only be the land value. The land value of an apartment in a residential building may only be a very small portion of the land value of the whole development. Therefore, the dutiable value may be substantially reduced from the contract price, and the applicable duty rates will be reduced, and the payable stamp duty may become a small amount with both the dutiable value and rates reduced.

Off-the-plan Concession

For off-the-plan properties, one needs to consider if the off-the-plan concession is applicable. It should first be noted that the off-the-plan concession is only available to natural persons and not a company or a  purchaser acting as trustee for trusts. Foreign natural person purchasers are also able to enjoy such a concession should they qualify for the principal place of residence concession (PPR Concession).

For contracts signed before 1 July 2017, the concession is available for all off-the-plan properties even if the purchaser is not living in the property, therefore the stamp duty is very low. For contracts signed on or after 1 July 2017, the concession is only available if the purchaser qualify for the PPR Concession OR the first home buyer duty exemption/concession and most purchasers have to pay the full stamp duty amount.

First Home Buyer Duty Exemption/Concession

To qualify for the first home buyer duty exemption/concession and hence the off-the-plan duty concession, the dutiable value of the property after applying the off-the-plan concession (i.e. after deducting construction costs) cannot exceed $750,000. If the dutiable value of the property after applying the off-the-plan concession exceeds $750,000, the off-the-plan concession will not apply and the dutiable value will be the contract price.

It is noted that purchasers should consider the First Home Buyer Duty Reduction if their contract was signed prior to 1 July 2017 for a similar concession to the First Home Buyer Duty Exemption/Concession. The difference between the two is that they apply to contract signed during different time periods.

Principal Place of Residence Concession (PPR Concession)

To qualify for the PPR Concession and hence the off-the-plan duty concession, the dutiable value of the property after applying the off-the-plan concession (i.e. after deducting construction costs) cannot exceed $550,000. At least one purchaser must also live in the property for a continuous period of 12 months starting within the 12 months after settlement in order to establish the property as the principal place of residence of the purchaser. This concession is also available to foreign purchasers.

Examples

If a foreign person purchases a Property and will live in the Property as a principle place of residence (PPR):

-      If the dutiable value is below $550,000 after applying off-the-plan concession, the PPR concession will operate and dutiable value will be the lowered value

-      If the dutiable value is over $550,000 after applying off-the-plan concession, the PPR concession will not operate and dutiable value will be at the contract price

Conclusion

For calculations related to stamp duty concessions and reduction, the applicable construction costs and dutiable value information may only be confirmed prior to settlement when the vendors provide stamp duty information to the purchaser. Therefore, given the quite complicated system of stamp duty concessions introduced above, for purchasers, it is always advisable to prepare for the full amount of stamp duty without concessions while preparing for settlement funds in Victoria, as the payable stamp duty amount may only be available shortly prior to settlement. For foreigners, it should be noted that such concessions do not include the surcharge stamp duty payable due to your foreign status and such surcharge stamp duty will be assessed based on the full contract price.

For issues related to stamp duty, clients may contact the responsible solicitor of your case for more details. Should you have any enquiries related to property matters, please consult Prudentia Legal.

Reference Materials

Applicable duty rates:

https://www.sro.vic.gov.au/non-principal-place-residence-dutiable-property-current-rates

Stamp duty calculator from the State Revenue Office of Victoria (note limitations of calculator):

https://www.e-business.sro.vic.gov.au/calculators/land-transfer-duty

Please note: The content of our publication is intended for general information purposes only, and should not be construed as legal advice on any matter. Please contact our firm for discussion of your particular circumstances.