• Stamp Duty Update

    2019-07-04

    Stamp Duty Update






    UDIA Victoria have met and have ongoing dialogue with:

    • The State Revenue Office
    • The Treasurers Office 
    • The Department of Treasury and Finance 

     

    We have made the following points very clear to Government: 

    • The economic entitlements amendment will fundamentally impact on the way land and property is developed in Victoria.
    • The stamp duty change to economic entitlements will mean Development Agreements come with an up front stamp duty liability
    • Developer Agreements are an important mechanism to bring developers into greenfield areas before PSPs are prepared so they are involved in the process. 
    • The residential development market is already under significant pressure from tighter lending standards and a range of policy changes over the past few years. 
    • The impact of the changes noted above is demonstrated in the decline in delivery of new housing to market.
    • The result of this decline in activity has already been felt by the State Government in the form of a $5.2 billion stamp duty write down in the State Budget.
    • We caution against making significant policy changes to tax settings affecting the residential sector which are likely to result in further declines in the delivery of residential land and dwellings to market as well as housing affordability.

    UDIA Victoria are in live discussions with the Victorian Government to pursue non-legislative amendments to the tax and to make clear its application and administration. 


    Key things to know: 

    1. Given the extent of over-reach by the legislation the government is relying heavily on the SRO to ‘administer’ the legislation in the way intended by govt to achieve the outcomes represented by govt. The jury remains out as to whether the SRO is capable of doing that, and obviously there is material scope for discord b/w what the govt intended and what occurs at a practical SRO level. Outcomes achieved in connection with the administration of the FPAD and AOS guidelines are a good example of this potential for discord.
    2. The Guidelines are a step in the right direction but are going to need further work and development by the SRO.  For instance, they remain completely silent on how development rights are valued for purposes of the Landholder provisions in Chap 3 of Part 2 of the Act.  Clearly the value of those rights cannot be valued in the same way as land.  The examples given are also relatively simplistic and provide limited practical guidance.
    3. The concept that the final duty liability will be determined by the SRO as 100%, or something less than 100%, is novel and unprecedented.  Ordinarily taxing legislation enables a taxpayer to self-assess the likely tax liability and strike a deal on that basis.  In so far as the new rules require developers to submit DAs to the SRO for the SRO to determine the percentage of economic entitlement and therefore the final duty liability, it is a model fraught with issues.
    4. Aspects of the Guidelines are disputable under the legislation.  The statement that an economic entitlement acquired before the commencement of the new legislation renders the developer entity ‘land rich’ under the Landholder provisions in Chap 3 of Part 2 of the Act doesn’t seem to be well founded under new Part 4B.  It also contradicts the grandfathering principle embodied in the changes.

    UDIA Victoria responded immediately and made direct representation to the Victorian Government calling for the amendment to the legislation to be pulled out of the parliamentary process to allow for proper consultation and a full assessment of its impacts. 

    We raised deep industry concern that government did not fully understand the practical implications of the new tax it is about to introduce on Victoria’s land procurement and housing supply chain.

    The amendment Bill has now passed through both houses of the Victorian Parliament and is likely to receive royal assent within the next 5-10 business days.  On the date of royal assent the new legislation will come into effect and the duty provisions will apply.

    UDIA Victoria is seeking information and clarification from the Victorian Government on the details of the new tax and how it will be applied, implemented and administered and will share this with UDIA members as soon as it is received.

    We encourage any members with existing Developer Agreements to check the legality of the agreement following the confirmation of these changes. 

    We also urge members to attend our free member-only briefings on 20 June and 17 July.