WA is the latest jurisdiction to levy a surcharge on direct and indirect acquisitions of residential property by foreign purchasers.
From 1 January 2019, foreigners acquiring residential property in Western Australia may pay an extra 7% stamp duty.
Western Australia has followed the other Australian States in introducing a stamp duty surcharge (Foreign Persons Surcharge) for certain acquisitions of "residential property" by "foreign persons".
When does the Foreign Persons Surcharge commence?
1 January 2019.
What about agreements entered into before 1 January 2019?
Generally, if an agreement to acquire "residential property" is entered into before 1 January 2019, then no Foreign Persons Surcharge is chargeable on any subsequent transfer of the "residential property" in conformity with the agreement.
What is the rate of Foreign Persons Surcharge?
The rate is 7%, which is on top of the general rates of duty (which are up to 5.15%).
Therefore, a "foreign purchaser" could pay Western Australian stamp duty totalling 12.15% on a transaction subject to the Foreign Persons Surcharge.
Which transactions are subject to the Foreign Persons Surcharge?
- direct acquisition of "residential property" by a "foreign person"; or
- relevant indirect acquisition of "residential property" by a "foreign person" (via an acquisition of shares or units in a "residential landholder").
What is a direct / indirect acquisition of "residential property"?
A direct acquisition covers a broad range of acquisitions where an interest in "residential property" is directly acquired, such as an agreement to acquire "residential property" (for example, a sale contract) and the transfer of "residential property". Other examples include a declaration of trust and a vesting of "residential property".
A relevant indirect acquisition of "residential property" includes the acquisition of a "significant interest" (or a further interest if a "significant interest" is already held) in a "residential landholder".
A "significant interest" is an interest of:
- 50% or more in a "residential landholder" which is an unlisted company / trust; or
- 90% or more in a "residential landholder" which is a listed company / trust.
A "residential landholder" is a company / trust which is directly or indirectly entitled to Western Australian landholdings of $2m or more (and some of the landholdings comprise "residential property").
Who is a "foreign person"?
A "foreign individual", "foreign corporation" or a "foreign trustee".
A foreign individual is an individual who is not an Australian citizen, permanent resident, or special category visa holder;
A foreign corporation is a corporation:
- incorporated outside Australia; or
- in which "foreign persons" control at least 50% of the voting power or hold 50% of the shares in the corporation.
A foreign trustee is a person who is a trustee of one of the following trusts:
- discretionary trust controlled by a foreign person; or
- discretionary trust for which "foreign persons" and their associates hold beneficial interests in at least a 50% interest as takers in default: or
- non-discretionary trust for which "foreign persons" and their associates hold beneficial interests in at least 50% of the income or property of the trust.
What is "residential property"?
Western Australian land that is:
- capable of being, or intended to be, used solely or dominantly for residential purposes; or
- vacant or substantially vacant and zoned solely for residential purposes under an applicable planning scheme.
Are there any exclusions to "residential property"?
Yes – some relevant exclusions include aged care facilities, retirement villages or "commercial residential premises" for the purposes of the GST legislation (such as hotels, motels, inns, hostels and boarding houses).
Easements and security interests are also excluded.
Are there any relevant exemptions to the Foreign Persons Surcharge?
Yes – an exemption applies to certain residential developments, which will be of particular relevance to foreign developers.
This exemption applies if the exemption application is made within the relevant timeframe, and the following criteria are satisfied:
- Foreign Persons Surcharge was payable on a transaction (irrespective of whether it is a direct or indirect acquisition);
- at the time the liability for Foreign Persons Surcharge arose, there was no building capable of being used solely or dominantly as a place of residence; and
- within five years beginning the day on which the transaction completed, the "foreign person" or a relevant associate:
- constructs or refurbishes 10 or more dwellings on the "residential property"; or
- subdivides the "residential property" so that 10 or more dwellings can be constructed on the property.
Effectively the "foreign purchaser" is required to pay the entire stamp duty (including the Foreign Persons Surcharge) on the acquisition of the "residential property" up-front, and then claim the exemption down the track once the relevant construction, refurbishment or subdivision activity takes place.
Does the Foreign Persons Surcharge apply to commercial land?
No – it only applies to "residential property".
Does the Foreign Persons Surcharge apply to land tax?
Not at present – it only applies to direct and indirect acquisitions of "residential property" as referred to above.