As part of a larger plan to stimulate the industry to deliver more housing supply and encourage more Australians to enter the property market, the Victorian Government has recently announced that the off-the plan stamp duty concession scheme will be expanded for people buying an apartment, townhouse or unit, off-the-plan.

Taking effect from 21 October 2024, any purchaser of residential property that is part of a strata subdivision, will be eligible for the new stamp duty concession. The Duties Amendment (More Homes) Act 2024 has now received Royal Assent.

Off-The-Plan Concession Before The Changes

Before the Victorian Government’s announcement, off-the-plan-duty concession was only available to first home buyers and owner occupiers.

To be eligible, the dutiable value had to be below a threshold of dutiable values of up to $750,000 for first home buyers and $550,000 for owner occupiers. Further, the existing concession is not available to investors, companies or trusts.

From 21 October 2024 until 21 October 2025, those limitations no longer apply.

Eligibility for the new stamp duty concession

The eligibility requirements for the new stamp duty concession are:

• applies to first home buyers, owner occupiers, investors and foreign persons. This includes companies and trusts;
• the property must be residential property in a ‘strata subdivision’ that has common property;
• the contract for the purchase of the dutiable property is entered into on or after 21 October 2024 and before 21 October 2025 (even if settlement occurs after this period);
• the concession will not apply if the State Revenue Office determines that the contract for purchase of the dutiable property replaces a previous contract for the purchase of the same property entered into before 21 October 2024.

House and land packages or other properties that are not part of a ‘strata subdivision’ will not be eligible for the new stamp duty concession.

What is a ‘Strata Subdivision’

There is currently debate around what is meant by the use of the term ‘strata subdivision’. That term is defined in the Transfer of Land Act 1958 (Vic), but rarely used. ‘Strata’ in ‘strata subdivision’ means ‘a part of land consisting of a space of any shape below, on, or above the surface of the land, or partly below and partly above the surface of the land, all the dimensions of which are limited’.

That means the plan of subdivision needs to show the dimensions for the unit.

In the context of apartments, that is clear as apartment dimensions are limited and described on a plan of subdivision. However, in the context of townhouses that may have common property (for example access roads) the position is less clear, as the townhouses are not typically shown with limited dimensions on a plan. It may be there was intent by the State Government initially when announcing to include such townhouses, although the legislation as drafted provides otherwise. At this stage there is ongoing debate between industry and government and the State Revenue Office over clarifying that position, potentially through SRO guidelines. If you would like to discuss this issue, feel free to reach out one of our team.

No cap on the new stamp duty concession

There is no cap on the concession.

How much a purchaser will save will depend on how much construction has already occurred at the time the contract is entered into. The calculation of the concession will be similar to the existing off-the-plan concession calculation - the purchaser can deduct the construction costs incurred on or after the contract date when determining the dutiable value of the purchaser’s property, and pay stamp duty on the lower amount.

As a reminder, we have set out below the key principles of how the off-the-plan concession works.

Determining the percentage of construction costs

The main principle of the off-the-plan concession is to allow the deduction of construction costs from the contract price, resulting in a lower dutiable value. There are 2 components to calculating that deduction.

The first component is the stage of construction that the building is at when the contract of sale is entered into. This is a sliding scale. If there has been no construction at all, then 100% of the construction costs amount can be deducted. If construction has been completed (but the plan of subdivision not yet registered) then it would be a nominal or zero percentage of construction costs to deduct.

The second component is the calculation of the construction costs amount to deduct (on a proportionate basis depending on the stage construction has reached as indicated above).

In calculating the construction costs amount, developers can elect between either of the following two methods for calculating the off-the-plan concession:

1. Fixed Percentage Method; or
2. Alternative Method.

Whilst the alternative method may in certain situations result in greater stamp duty savings for purchasers, it has historically not been the preferred approach as it requires developers to determine various values relating to the land and the cost of construction and is very time consuming.

As with the existing off-the-plan concession, the fixed percentage method will likely continue to be preferred method amongst developers as this includes the use of a deemed minimum percentage amount (fixed percentage) which represents the amount paid or payable by the purchaser for the construction component of the contract.

When using the fixed percentage method, developers are required to:

• define the class of building; and
• determine what percentage of the building works have been completed at the contract of sale date.

The deemed fixed percentages for various classes of buildings are as follows:

In closing

It is important for developers to be mindful of the principles of how off-the-plan concession is calculated, as these remain unchanged.

Key reminders and limitations for developers to consider:

• the temporary nature of the temporary concession and its operation is only valid until 21 October 2025. This relies on developers having approvals in place and contracts out to market, together with a sales team that can move quickly to snap up sales in this short period for the concession to apply;
• developers who have unsold stock in the market that has already titled will not see the benefit of the new concession. If a statement of compliance has not yet been issued, then developers should consider managing plan lodgement timeframes to incentivise sales;
• watch out for developments on townhouses and whether the temporary off-the-plan concession may apply; and
• remember that when the temporary concession ends on 21 October 2025, the existing concession for first home buyers and owner occupiers will continue to apply.