Buyers in Melbourne’s hard-hit CBD will be given stamp duty relief, while those in premium markets will be forced to pay more tax in a state budget focused on fiscal and economic repair.
Delivering Thursday’s budget, treasurer Tim Pallas said the measures were about making sure everyone pays their fair share while supporting markets affected by the pandemic.
“Targeted tax relief will kick-start the CBD residential property market to support construction jobs,” Mr Pallas said.
But it will come at the cost of buyers in more premium markets, with Mr Pallas confirming $2.7 billion would be raised over the next four years through a range of measures including a new ‘premium’ stamp duty rate, increased tax on large land holdings and a new tax on property owners and developers who profit from rezoning decisions.
Relief for inner-Melbourne market
Victoria’s economy was the hardest hit by the coronavirus pandemic and Melbourne’s CBD bore the brunt of several stages of restrictions.
The government has committed $200 million to help revitalise the city centre and drive economic activity, including stamp duty concessions for new dwellings as well as a new voucher scheme and support for the arts and cultural events.
Stamp duty concessions
From Friday, Victorians buying new residential property worth up to $1 million in the Melbourne local government area will have stamp duty waived if the property has been unsold for more than a year.
If the property has been on the market for less than a year, stamp duty will be half price from July 2021.
In an attempt to boost apartment sales, eligibility thresholds for stamp duty concessions on off-the-plan purchases will be temporarily lifted to include properties worth up to $1 million. The current thresholds are $550,000 for owner-occupier buyers and $750,000 for first home buyers.
Property Council Victorian executive director Danni Hunter welcomed the measures.
“The Victorian Government has heard our pleas to secure construction jobs in Melbourne’s CBD and central city,” Ms Hunter said.
“The targeted stimulus measures to attract people back to our CBD as a place to call home is appropriate and will make a valuable difference to the vitality and sustainability of our CBD and central city.”
But she said the decision to hike to taxes for investors and developers as well as a new premium stamp duty rate were “anything but fair.”
“Victorian homeowners, renters, businesses and investors will pay for these tax increases, on top of the huge portion of tax revenue they already pay,” Ms Hunter said.
“Victorian families will pay more to buy a house that suits their needs. Victorian businesses will pay more in the form of increased land tax and costs on businesses through their office space or warehouses. This, in turn, will flow through to the cost of products and services for every Victorian.”
‘Premium’ stamp duty rate
From July 2021, a new premium stamp duty rate will be introduced on property transactions worth more than $2 million.
Under the change, stamp duty payable would increase to $110,000 plus 6.5% of the dutiable value in excess of $2 million, up from 5.5% currently.
That’s the equivalent of an extra $20,000 in stamp duty for a $2 million home.
The government said the move will impact less than 4% of transactions and raise an additional $137 million in the 2021/22 financial year.
Higher tax on large landholdings
Taxable landholdings – such as an investment property, commercial property or holiday home – worth more than $1.8 million will be required to pay more land tax from January 2022.
For taxable landholdings worth more than $1.8 million, the land tax will rise by 0.25 percentage points to 1.55%, and 0.3 percentage points for taxable landholdings exceeding $3 million to 2.55%.
The changes are expected to raise more than $380 million per year.
Less than 10% of Victorians currently pay land tax, which is not paid on owner-occupied homes.
Economist at realestate.com.au, Anne Flaherty said the measures would likely drive more landlords out of the market.
“This will decrease the level of stock available to lease, which will push rents up, particularly when international migration resumes.
“These measures are also likely to impact the development of new dwellings in Victoria, which could further the imbalance between demand and supply and drive both prices and rents higher,” Ms Flaherty added.
Windfall gains tax
Property owners who benefit from re-zoning decisions will face a new tax of up to 50% on windfall gains above $500,000 from July 2022, in a move the government says will ensure “multi-million dollar overnight profits” are shared with the community.
The windfall gains tax will only apply to properties where the value is boosted by more than $100,000 as a result of re-zoning decisions, tapering to a 50% tax for windfalls above $500,000.
The Victorian branch of the Urban Development Institute Australia said the term “windfall gains” was misleading as the measures wouldn’t only impact those who stand to make huge profits.
“The Victorian government is calling this Rezoning Tax a “Windfall Gains Tax”. UDIA Victoria refuses to adopt this misleading term, given the new tax is not simply applicable to those making “massive windfall profits overnight”, as the government suggests,” said UDIA Victoria chief executive Matthew Kandelaars.
“The tax will in fact hit regional markets, and infill and urban renewal sites including projects rezoned to provide affordable and social housing,” he said.
How the measures compare to other states
Economist Saul Eslake, who led a review of taxation for the Victorian Treasury four years ago, criticised the proposed increases to stamp duty.
“The review which I and two other people did for Tim Pallas has recommended that stamp duty be abolished and replaced with a broadly based land tax from which the family home is not exempt,” Mr Eslake said in a radio interview.
At 6.5%, Mr Pallas said the new premium stamp duty rate brings Victoria “more into line with NSW, which has a premium stamp duty rate of 7% on homes worth more than $3.1 million.”
However, the NSW government plans to phase out stamp duty for residential property in place of a smaller annual property tax.
The ACT has also made a similar commitment.
The proposed changes to stamp duty in Victoria could have implications for the commercial property sector, according to Ms Flaherty, where sales can run into the tens of millions of dollars.
“This will significantly impact Victoria’s appeal as a place to invest in and develop commercial property and as a place to do business,” Ms Flaherty said.
“This increase in stamp duty is somewhat surprising given moves by other states to consider removing it.”
The South Australian government abolished stamp duty on commercial property transactions in 2018.
To discuss how these changes might impact you, get in touch with your Smartline Adviser.
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