The Victorian Government has recently announced housing initiatives. These include the abolishment of stamp duty for some first-home buyers, changing the FHOG in regional Victoria, changes to off-the-plan concession, and a tax for vacant residential property.
These initiatives have to be approved by the Victorian Parliament before they can begin. You should only rely on the exact detail of the changes once the legislation is passed. This is likely to be in June 2017.
Here are the answers to some frequently asked questions about the proposed changes to the off-the-plan duty concession.
Our website will be updated with more detailed information when it becomes available.
1. What is the existing off-the-plan (OTP) duty concession?
The existing OTP duty concession can apply to land and building purchases or refurbishments of an existing building. It can reduce the "dutiable value" of the property being transferred for duty purposes.
The OTP value is determined by deducting from the contract price construction or refurbishment costs which occur on or after the contract date. This means that for OTP purchases where construction has not commenced, the dutiable value of the property (after applying the OTP concession) will generally reflect the land value only.
Example 1 - An off-the-plan apartment
Paige buys an apartment off-the-plan for a contract price of $620,000 before any construction has started as her future home. The vendor advises Paige that after signing the contract, $465,000 of her contract price will be spent on constructing her apartment.
This means that after applying the off-the-plan concession, the dutiable value of Paige’s apartment is $155,000 ($620,000 - $465,000).
If some building work has begun at the time of contract, the dutiable value will generally reflect the value of the land and construction work completed at the time of contract.
2. What is the proposed change?
The proposed change means that the concession will only apply to buyers purchasing an OTP property to occupy as their home (principal place of residence) with a dutiable value under a certain threshold.
This also means that as a result of the proposed change, the concession would no longer be available for OTP purchases of a holiday home and investment or commercial properties.
3. How will the new OTP concession work?
The concession will be relevant for determining whether a transfer meets the dutiable value threshold for a:
- Principal place of residence concession (dutiable value up to $550,000), or
- Proposed first home buyer duty exemption (dutiable value up to $600,000), or
- Proposed first home buyer duty concession (dutiable value up to $750,000)
If a transfer is below the relevant dutiable value threshold (after applying the OTP concession), that dutiable value is then used to calculate the duty payable for the purpose of the principal place of residence (PPR) concession or the proposed first-home buyer duty concession.
No calculation is required if you are eligible for the proposed first-home buyer duty exemption.
The revised OTP concession will be contingent on you as a purchaser meeting the residence requirement for the PPR concession or the proposed first-home buyer duty exemption/concession. Failure to meet the residence requirement will result in the transfer being reassessed with the concession removed.
You will also be obliged to notify the Commissioner if a change in circumstances occurs that may result in you failing to meet the residence requirement.
4. You are a first-home buyer. What criteria do you need to meet for the revised OTP concession?
- Your new home must have a dutiable value (after the OTP concession is applied) of $750,000 or less,
- All purchasers and their partners must meet the FHOG eligibility criteria, and
- At least one purchaser must use the property as their PPR for a continuous period of 12 months, commencing within 12 months of taking possession of the property (normally settlement)
5. This is not your first home purchase. What criteria do you need to meet for the OTP concession?
- Your new home must have a dutiable value (after the OTP concession is applied) of $550,000 or less,
- You must meet all other criteria for the PPR concession, and
- At least one purchaser must use the property as their PPR for a continuous period of 12 months, commencing within 12 months of possession of the property (normally settlement)
6. When will the changes to the OTP concession start?
The revised OTP concession would apply to eligible transfers resulting from contracts entered into on or after 1 July 2017.
If you enter into a contract before 1 July 2017 but settle after that date, the existing OTP concession will continue to be available.
7. Will the revised OTP concession apply to nominations made after 1 July 2017?
The revised OTP concession will only apply to eligible transfers resulting from contracts entered into on or after 1 July 2017. This is because it is the contract date that determines which provisions will apply to a transfer, including where the original purchaser nominates a substitute purchaser.
Accordingly, if there is a nomination under a contract that was entered into before 1 July 2017, the current OTP concession will apply to the transfer to the substituted purchaser. This will be the case even if the nomination triggers the sub-sale provisions.
8. How will the revised OTP concession work for non-first home purchasers and non-principal place of residence transactions?
The proposed changes mean that the existing OTP concession would no longer apply if you are purchasing a commercial or investment property.
9. Will the proposed changes affect related parties transactions?
No. The proposed changes will not affect the current approach to related party transactions where the consideration paid for a property is less than market value (inadequate consideration paid).
For eligible contracts, dutiable value will still be calculated by determining the higher of the consideration paid (after the revised OTP concession is applied) and the unencumbered value (market value) of the subject property as at the date of the contract.