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Victoria’s budget includes new taxes and concessions

Victoria’s budget includes new taxes and concessions

Michelle Bennett, Tessa Livingston and Sara Wemyss-Smith discuss proposed measures which seek to address the headline $5.2 billion reduction in stamp duty, as a result of the slump in the real estate market.

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Michelle Bennett

Partner, Stamp Duty

KPMG Australia

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The Victorian Government has announced tax increases of $700 million over four years in its 2019 budget, which was released on Monday.

The proposed measures seek to address the headline $5.2 billion reduction in stamp duty, as a result of the slump in the real estate market. Little mention was made of the significant increase in forecast land tax collections which flow from overall gains in value, unaffected by the fall in market volumes, and which partially offset the stamp duty loss. The key sweeteners for business are significant infrastructure spending, payroll tax reductions and a number of measures to attract and support business in regional areas.

There is a mixed ‘blessing’ in the form of proposed changes to the corporate reconstruction exemption which Treasurer Tim Pallas considered will promote “greater business efficacy by making it easier for corporate groups to restructure”. The current corporate reconstruction exemption provides a full concession for duty for most restructures within a wholly-owned corporate group. From 1 July 2019, the qualifying provisions are proposed to be expanded, however, the 100 percent exemption will be reduced to a 90 percent concession. As a result, companies and unit trusts undertaking a qualifying business restructure will now be liable for duty on 10 percent of the dutiable value of the business assets.

The proposed changes will impact companies and trusts who have land within Victoria, and are undertaking restructures which are not expected to complete by 30 June 2019. While details are yet to be released, it is likely that the collection of duty on previously exempt transactions, at an effective rate of 0.55 percent, will significantly increase disclosure obligations and cost to taxpayers. However, it is hoped that the broadening of the concession will allow concessional re-organisations for businesses currently unable to qualify for the existing exemption.

Key revenue measures

  • A further increase to the ‘Foreign Additional Purchaser Duty’ (FAPD) from 7 to 8 percent from 1 July 2019, and an increase to the ‘Absentee Owner Surcharge’ (AOS) from 1.5 to 2 percent from 1 January 2020. These updates are intended to align with the current New South Wales tax rates, and reflect the second increase since the introduction of FAPD and AOS in the 2015-2016 budget. These changes are likely to increase the costs of investing in Victoria and may reduce investment at a time when the property market is under significant pressure. 
  • Removing the land tax concession on vacant properties adjacent to primary residences in metropolitan areas from the 2020 land tax year to reduce “land banking”. 
  • The introduction of a 2.75 percent royalty on the net market value of gold production. Small gold miners will be exempt. These proposed changes are expected to generate $56 million over four years from 1 January 2020.
  • New and second-hand luxury motor vehicles (worth over $100,000) will be subject to increased duty rates from 1 July 2019. This is subject to exemptions for caravans, motorhomes, low emission cars, primary producer passenger vehicles, and dealer demonstrator models.  

New tax concessions

A number of concessions have also been introduced to bolster forecast improvements in employment and support regional development.

  • A 50 percent land transfer duty concession for industrial and commercial property in regional Victoria, intended to encourage businesses to relocate to regional areas. A 10 percent concession will be applied to contracts signed from 1 July 2019 and will increase by 10 percent each year to reach the 50 percent discount by 1 July 2023. 
  • The regional payroll tax paid by eligible business will be reduced to 1.2125 percent by 2022-23, to encourage further regional development. The reduction will be phased in over three years from 2020, with a reduction of around 0.4 percentage points each year. Eligibility for the regional rate will also be simplified and expanded by removing the ’business location test’, which required an employer to have their business address within regional Victoria.
  • The payroll tax-free threshold will be increased to $700,000 from the current threshold of $650,000 by 2022-23, with increases of $25,000 each year from 1 July 2021.
  • A payroll tax exemption will be extended to all wages paid to employees on parental leave from 1 July 2019. The exemption expands on the current concession on maternity leave payments, and will apply for up to 14 weeks of wages paid to employees taking parental leave.

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