The 2016-17 NSW Budget was handed down yesterday. The key stamp duty outcomes are the confirmed abolition of certain business duties, mortgage duty and marketable securities duty, and the introduction of the 'surcharge purchaser duty' on foreign purchasers like those in Victoria and Queensland.
Foreign purchaser surcharge
New South Wales, Queensland and Victoria will impose a foreign purchaser surcharge on the acquisition of residential land by foreign purchasers, meaning the whole Eastern Seaboard is now subject to the duty surcharge. The surcharge is in addition to the duty normally payable on acquisitions of land and also applies to landholder duty charged on indirect acquisitions of residential land.
When combined with the new foreign vendor withholding tax regime, every property transaction must be analysed to determine if the buyer or seller are foreign. Further, on the buyer side, an analysis is required as to the land acquired and whether it is residential land.
Victoria introduced these rules last year (effective from 1 July 2015), with further changes currently going through Parliament. The changes include increasing the surcharge from 3% to 7% and proposed expanding the definition of residential property to include short term accommodation including hotels, motels, retirement villages and student accommodation. The Bill has not yet passed, and it is now proposed to reverse this expansion to exclude 'commercial residential premises' as defined in the GST legislation and retirement villages. The Victorian Bill and proposed amendment are available online.
Last week, Queensland introduced legislation for a 3% surcharge based on a narrower definition of residential land, but which has many broader aspects including a broader definition of foreign purchaser and a three year claw back for change of ownership/control if the purchaser becomes foreign within that period.
The New South Wales rules announced and introduced to Parliament yesterday are similar to the Victorian and Queensland provisions but with a narrower definition of residential land, and using a different foreign person test.
The key New South Wales provisions to note are:
- a 4% surcharge on acquisitions of residential land (and options to purchase residential land), calculated by reference to the dutiable value of the land (generally the purchase price);
- residential land is defined to be a parcel (or lot in a strata scheme, or a land use entitlement) on which there are one or more dwellings or partially completed dwellings, and a parcel of vacant land (or substantially vacant land) that is zoned for residential purposes or principally for residential purposes. It does not include land intended to be used for residential purposes which is not otherwise residential land (such as a commercial office building to be converted into strata apartments);
- a foreign person is defined generally by reference to the definitions under the Foreign Acquisitions and Takeovers Act 1975 (Cth). This means that the thresholds are lower than Queensland or Victoria and include:
- where a single foreign entity holds an interest in a corporation or a trust of 20% or more; and
- where two or more foreign entities holds interests in a corporation or trust of 40% or more;
- the surcharge applies to all contracts entered into from 21 June 2016; and
- the concession for residential off-the-plan purchases (which allow for a delay of up to 12 months in the payment of duty) will not be available for foreign purchasers.
There is also a surcharge land tax of 0.75% on residential real estate owned by foreign persons commencing in the 2017 land tax year. No tax-free threshold and no principal place of residence exemption will apply to the surcharge land tax meaning that landowners who are not required to pay land tax may still be liable for the surcharge land tax.
- the threshold is significantly lower than the provisions in Victoria and Queensland and includes joint ventures where foreign parties are minority participants. Accordingly, more entities will need to consider whether these provisions apply to them;
- the rules also apply to acquisitions of interests in landholding companies and unit trusts;
- every property transaction will now require an analysis of the foreign status of both the vendor and purchaser to determine if the surcharge apples;
- on the seller side, the need to obtain a clearance certificate (for the new foreign vendor withholding tax regime) will affect the timing of the transaction, dealings with banks, managing the payments and withholding up to 10% of the purchase price. See our previous alert about these provisions; and
- on the buyer side, whether a buyer is foreign will clearly affect the pricing of a transaction, and the competitiveness of various bidders for an asset. In Queensland, the buyer and seller are also jointly and severally liable for the surcharge (although the seller can recover the surcharge from a foreign buyer).
We have prepared a comprehensive table outlining the operation of the Foreign Purchaser Surcharge rules, and set out the key differences between each of NSW, Victoria and Queensland.
NSW Budget - other changes
The abolition of mortgage duty, marketable securities duty and duty on the transfer of business assets (such as goodwill, licences and intellectual property) will go ahead from 1 July 2016.
The removal of these taxes is welcome, although be aware that dealings in debt and loans can still have duty consequences in Queensland, Western Australia and the Northern Territory.
In addition, whilst no share transfer duty is now payable in Australia, landholder duty may be payable on any relevant transfer.