Section 28A of the Duties Act 2000 (Vic) provides that additional duty is payable when a foreign purchaser acquires residential property in Victoria.

As of 1 July 2019, the rate of additional duty increased to 8%. This is payable in addition to the regular rate of duty that is otherwise payable on the transaction. As such, in circumstances where the price of the transaction attracts regular duty at 5.5%, the total amount of duty that a foreign purchaser will now need to pay on that transaction, is 13.5% of the purchase price.

Developers are of course largely impacted by these provisions, given that the definition of residential land includes, "land on which a purchaser intends to affix a building that is designed ...solely or primarily for residential purposes". In other words, land that may not ordinarily appear to be a residence, will be caught by the provisions.

Exemptions for foreign purchasers

There has always been the possibility for a foreign purchaser to seek an exemption from the additional duty pursuant to section3E(2) of the Duties Act, by seeking the exercise of the Treasurer's discretion (delegated to the Commissioner) to grant a written exemption.

Section 3E provides a number of grounds pursuant to which an exemption may be granted. Further, section 3E(4) provides that the Treasurer must issue guidelines for the exercise of the power of exemption (and which have been issued).

South Wharf Towers Pty Ltd v Commissioner of State Revenue (Review and Regulations)[2019] VCAT 64 is the first decision of the Tribunal (and of any Court) to consider the application of the exemption and the guidelines issued by the Treasurer.

This was a favourable decision for the foreign purchaser (who was a developer), as the Tribunal found that it was appropriate for the discretion under section 3E to be exercised to exempt the purchaser from the additional duty (netting in a significant saving to the foreign purchaser).

The case considers a number of factors, including the Treasurer's guidelines, which stated that it would be a relevant consideration where the foreign purchaser can demonstrate that it is actively investing in and significantly adding to the supply of housing stock in Victoria, or that its main commercial activity is in purchasing existing property for redevelopment where the primary use of the redevelopment is for residential purposes.

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