Between April and June, each of the Australian State and Territory governments handed down their respective budgets. We outline below some of the key business announcements:
Surcharge on residential property purchased or held by foreign residents
(Victoria, New South Wales (NSW) and Queensland)
In its 2015 state budget, the Victorian government was the first Australian jurisdiction to introduce a stamp duty surcharge of 3% on foreign residents purchasing residential property. From 1 July 2016, Victoria has increased the surcharge rate to 7% and both NSW and Queensland have also introduced a similar surcharge. The surcharges apply to acquisitions by foreign resident individuals and to companies and trusts in which foreign residents hold substantial interests and apply to both ordinary transfer duty and landholder duty. To add complexity for taxpayers, the legislation has been uniquely drafted in each jurisdiction which means there are variances in definitions and how the rules operate. For example, the definition of foreign person in NSW is derived from the Foreign Acquisitions and Takeovers Act 1975 (Cth), whereas Victoria and Queensland have inserted their own definitions into their respective legislation. We also note that trustees of discretionary trusts ought to be careful of their exposure to the new surcharge when a foreign person is a member of a class of beneficiaries.
In addition to the stamp duty surcharge, in 2015 Victoria also introduced a 0.5% surcharge on land tax paid by foreign absentee land owners (which can apply to both residential and commercial property). From 1 January 2017, Victoria has increased that rate to 1.5% while NSW has also introduced a similar charge (charged at the rate of 0.75%), albeit limited to residential property.
Also, in NSW, foreign investors are now excluded from the land tax free threshold and are unable to use the “residential off the plan purchasers” scheme (which allows parties to delay their duty payments for up to 12 months following purchase of a residential property “off the plan”).
The following table summarises the foreign resident stamp duty surcharge and land tax rates operating in Australia.
Click here to view the table.
Abolition of duty on certain dutiable property
(NSW, Australian Capital Territory (ACT))
NSW has followed through with its scheduled abolition of duty on mortgages, transfer duty on share and unit transfers and non-real business assets from 1 July 2016.
The ACT has abolished duties on insurance premiums from 1 July 2016.
Reduction of conveyancing duty rates
In accordance with its previously announced plan to abolish stamp duty over a number of years, the ACT government has reduced its conveyancing duty rates. For acquisitions of $1,455,000 and over, the rate has reduced from 5.17% to 5.09%.
The ACT government also announced that, from 1 July 2017, the rate of duty on a conveyance will be split between residential and commercial properties. Duty on commercial properties valued at less than $1.5 million will be phased out over the next two years with duty on commercial properties valued over $1.5 million to be reduced to 5%.
However, from 1 July 2016, general rates for ACT properties have been increased by an average of 4.5% for residential properties and an average of 7% for commercial properties to compensate for the loss of stamp duty revenue.
Payroll tax amendments
(Victoria, NSW, ACT, South Australia)
Four states introduced payroll tax amendments in their 2016 budgets. The following table summarises the key announcements:
Click here to view the table.
While the abolition of a number of duties in NSW and the reduction in ACT duty rates are welcome, the impact of the new or increased duty and land tax rates on foreign residents and foreign controlled entities in foreign investment into Australia remains to be seen.