New Property Tax Update In Australia 2021

October 8, 2021    accountantinperth

Each year in Australia, during the government announcement of the budget, tax updates are announced. In the state budget announcement of Victoria on 20 May this year, property tax updates have been introduced. These updates include introducing a 50% windfall gains tax for rezoned land and an increase in stamp duty and land tax rates.

These changes are expected to heavily affect the real estate sector in Victoria. This blog discusses the latest property tax update of Australia that you should be aware of.

Windfall Gains Tax For Rezoned Properties

As the Victorian state budget was announced on 20 May 2021, a new windfall gains tax will be effective from 1 July 2022.

If there is an increase in the property value above AUD 500000 (which equals almost US $380000) resulting from a rezoning decision taken by the local council, the windfall gains tax will be 50%.

If the property value increase is between AUD 100000 and AUD 500000, applied taxation rates will be lower.

According to the government rules, this new tax is aimed at landholders and developers who benefit from this land value increase that results from a rezoning decision. However, the scope of the tax will eventually depend on the legislation drafting, which is not issued yet.

This windfall gains tax can be considered a new capital gains tax applied at a state level, which can impact the property developments in Victoria.

In New South Wales, too, a bill had been introduced on 22 June 2021 to make changes in the property tax rate in cases of property value increase resulting from the local government's rezoning of land or spending on the infrastructure. According to these changes, several property developers have to pay additional levies once their projects are approved.

Increase In Stamp Duty Rates

A new top duty rate will be introduced for properties with a value of AUD 2 million or more. Currently, for properties valued over AUD 1 million, the stamp duty rate is 5.5%. Thus, for contracts that had been effective from 1 July 2021, the rate of land transfer duty will increase to AUD 110000, with an additional 6.5% of the dutiable value that is more than AUD 2 million.

Increase In The Land Tax Rates

From 1 January 2022, taxpayers with property holdings have to pay the land tax rate at an increase of:

  • 0.25% for taxable landholdings, the value of which exceeds AUD 1.8 million.
  • 0.3% for taxable landholdings, the value of which exceeds AUD 3 million.

Increase In Payroll Tax

For businesses in Victoria having national payrolls of more than AUD 10 million per year, a new mental health and wellbeing levy needs to be paid in the form of a payroll tax surcharge at a 0.5% rate on wages they pay.

Businesses that have national payrolls of more than AUD 100 million will need to pay an additional surcharge at a rate of 0.5%. So, the total increase in the payroll tax is 1%.

New Guidelines By ATO For Dealings In Intangibles

The ATO (Australian Taxation Office) has released the Practical Compliance Guide 2021/D4 (PCG) draft form. This compliance guide discusses what the Australian Taxation Office will check to assess the risk associated with transactions involving dealings with intangibles.

Specifically, it focuses on cross-border arrangements related to the DEMPE (development, enhancement, maintenance, protection, and exploitation) of intangible assets and involves the migration of intangible holdings outside Australia.

It points out the critical factors that the Australian Taxation Office will take into account while analysing the compliance risks and likely results of ATO review and audit of such intangible asset dealings.

Key issues addressed in the guide include the retrospective operation of the PCG, whether the transactions are correctly priced for transfer pricing purposes, whether intangible assets are correctly identified for tax purposes, and whether withholding obligations are satisfied.

The guide also focuses on document content and related evidence that multinational firms must maintain.

As per reports, ATO activity has increased significantly in recent years in the issues mentioned above. From the draft PCG, it is now clear that this situation will continue, and thus the past ATO positions regarding intangible asset transactions will face changes. Therefore, taxpayers involved in such businesses should carefully read the guidelines discussed in the PCG to analyse the likely approach of ATO to this matter.

Change In Capital Gains And Discretionary Trusts

In a recent legal hearing, the Full Federal Court of Australia has confirmed that the Australian trustee of the Australian discretionary trust has to pay capital gains tax associated with the share disposals. This condition will apply even if the relevant trust beneficiary is a non-Australian resident. Therefore, this case clearly sends a warning message to foreign investors who invest in Australian assets via an Australian discretionary trust.

In the past, foreign investors investing directly in Australian assets usually expected to avoid paying Australian CGT (capital gains tax) on the profits gained on disposal of assets that are 'non-taxable Australian property.' These assets are neither real estate nor interests in real estate.

  • Taxpayers usually consider trusts a disregarded entity for tax purposes in Australia. But here, the Federal court upheld the verdict given by the lower court. It says that the interaction of Australia's trust rules and CGT rules means that the beneficiary does not benefit from the exemption that a directly investing foreign resident would have.

  • In the case of a discretionary trust in Australia, the trustee has the power to decide who can get the trust income. However, the rule is different for a fixed trust, where the beneficiary's entitlement is fixed and known.

Final Words

As a taxpayer in Australia, it will be vital for you to be aware of all the tax updates. Otherwise, you may face serious troubles with the taxation authority. For assistance, you may consult a tax accountant, and Accountant Perth can help you with it.

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