Don’t get Stung with Additional Duty

Most of us know that when you buy or acquire a property in Victoria, you must pay land transfer duty (stamp duty) unless an exemption applies.

Since 1 July 2015, foreign purchasers acquiring residential property in Victoria pay additional duty of 3% on the dutiable value of the share of the property acquired (Foreign Purchaser Additional Duty or FPAD).

When might FPAD apply?

Broadly, FPAD could apply to the following transactions:

• buying residential property at an auction or private sale
• gifts of residential property
• certain leasing arrangements
• transfers of interests in a deceased estate
• acquisitions of interests in a ‘landholder’ that holds residential property (generally, a company or trust).

Who might FPAD apply to?

FPAD applies to foreign purchasers of Victorian property, which includes a foreign natural person, a foreign corporation or a trustee of a foreign trust.

Importantly, a foreign trust includes a trust where a foreign natural person, foreign corporation or a trustee of another foreign trust has a ‘substantial’ interest in the trust estate of the trust.

For example, in the case of a discretionary trust, if any specified or general beneficiary is a foreign natural person, foreign corporation or a trustee of a foreign trust, the discretionary trust will be a foreign purchaser.

This makes the potential scope of application of FPAD very broad, with the risk that purchasers may be stung with FPAD without proper advice.

FPAD is increasing from 1 July 2016

FPAD will be increased from 3% to 7% in addition to the usual rate of duty for purchases occurring on or after 1 July 2016.

What should you do?

If you are considering acquiring Victorian property through a discretionary trust, care must be taken where the trust’s general beneficiaries might include a foreign natural person, foreign corporation or trustee of another foreign trust. If this is the case, the discretionary trust might be a foreign purchaser and subject to FPAD.

Morrows can review terms of your trust deed and provide advice as to whether the trust deed should be amended before any acquisition of Victorian property. If you have already acquired Victorian property through a discretionary trust since 1 July 2015, we recommend you contact us as soon as possible to discuss what options are available to you.

Please contact Russell Krupp on 9690 5700 or email rkrupp@morrows.com.au.