2017-18 New South Wales State Budget: Tax and duty changes, including significant increases to stamp duty and land tax surcharges, and certain exemptions and/or refund provisions for Australian-based developers and permanent residents
The New South Wales 2017-18 Budget handed down on 20 June 2017 has confirmed the pre-announced significant increases to stamp duty (from 4% to 8%) and land tax surcharges (from 0.75% to 2%) for 'foreign persons' of New South Wales residential property. These changes, together with others outlined below, have been introduced into the New South Wales Parliament under the State Revenue and Other Legislation Amendment (Budget Measures) Bill 2017 (NSW) (Bill).
Who will the increased surcharges impact?
The increased stamp duty surcharge will primarily impact foreign investors in, and developers of, New South Wales residential land (either through the direct purchase of land or through the acquisition of interests in companies or trusts that hold New South Wales residential land).
The increased land tax surcharge will impact existing and future foreign holders of New South Wales residential land, either held directly or through interposed companies or trusts. It may also impact tenants of foreign landlords where the provisions of their lease allows the landlord to recover any land tax surcharge assessed in relation to leased premises.
In certain circumstances, the Chief Commissioner must assess and refund the whole or a proportion of the surcharge purchaser duty and surcharge land tax for Australian-based developers of residential land on application by the taxpayer. Given the significant increases in the surcharge rates, investors in and owners of New South Wales residential land should consider whether an exemption or refund may be available. The Bill also provides for refunds of surcharge purchaser duty for purchasers of commercial residential premises, however, the relevant provisions / guidelines are yet to be published. Certain permanent residents will also be exempt from surcharge purchaser duty and surcharge land tax.
Stamp duty surcharge – 8% imposed on foreign purchasers of residential property
As outlined in our previous News Alert (MinterEllison Alert | Foreign purchaser duty surcharge and NSW Budget), with effect from 21 June 2016, a 4% surcharge was imposed on acquisitions of residential land (and options to purchase residential land) by 'foreign persons'. The surcharge applies to both direct acquisitions (ie transfers of land) and indirect acquisitions (ie through the acquisition of interests in landholder companies and unit trusts).
The Bill provides that for transactions on which surcharge purchaser duty is charged that are entered into on or after 1 July 2017, the surcharge rate will increase from 4% to 8%. The existing 4% rate will apply in to transfers of residential-related property made in conformity with an agreement for sale entered into before 1 July 2017, and transactions that result from the exercise of an option for the sale or purchase of residential-related property if the option was granted before 1 July 2017.
The 8% surcharge will increase the top stamp duty rate for foreign purchasers to 13.5%. In addition, a premium property rate of 7% can also apply to the acquisition. For example, the stamp duty payable by a foreign purchaser of a $5,000,000 residential property may be $690,490 (comprising duty at the general rate of $150,490, duty at the premium property rate of $140,000, and duty at the increased purchaser surcharge rate of $400,000).
The New South Wales Treasurer has forecast that the increase in the stamp duty surcharge will raise an additional $111m in the 2017-18 year.
Land tax surcharge – 2% imposed on residential land owned by foreign persons
With effect from the 2018 land tax year (which takes effect on midnight 31 December 2017), the land tax surcharge rate will increase from 0.75% to 2%. This surcharge applies to 'foreign persons' who hold residential land in New South Wales. The land tax surcharge applies to land held directly or via a company or trust. The increase means that the top land tax rate applicable to such persons will increase from 2.75% to 4%.
The impact of the increase in this surcharge is significant. For example, the annual land tax payable by a foreign person owning residential land with a taxable value of $5,000,000 will increase by $62,500. The New South Wales Treasurer has forecast that the increase in the land tax surcharge will raise an additional $69m in the 2017-18 year.
Refunds of surcharge purchaser duty and refunds and exemptions from surcharge land tax for Australian-based developers
The Bill provides for a full or partial refund of surcharge purchaser duty paid on transfers of, or agreements for the sale or transfer of, residential-related property to Australian corporations that construct and sell new homes on the residential land concerned. The refund provisions apply to eligible developers who acquired land on or after 21 June 2016.
The Bill also provides an exemption from, and refund of whole or part of the surcharge land tax in respect of certain residential land owned by the Australian corporation at the taxing date. The exemption applies from the 2017 land tax year onwards.
An Australia corporation (being a corporation that is incorporated under the Corporations Act 2001 (Cth)) may be eligible for a refund of the surcharge purchaser duty and refund / exemption from the surcharge land tax if the Chief Commissioner is satisfied that:
- the corporation or a related body corporate of the corporation constructed a 'new home' (having the same meaning as in the First Home Grant (New Homes) Act 2000 (NSW)) on the residential land to which the residential-related property relates after completion of the transfer of the property to the corporation, and
- the corporation has sold the new home to a person other than an associated person of the corporation, and
- the home was not occupied or used as a place of residence or for any other purpose at any time during the period commencing on completion of construction of the new home and ending on completion of its sale.
A dwelling that has been rented or occupied at any time while owned by the developer is not eligible for a refund.
The proportion of surcharge purchaser duty and surcharge land tax refunded will be based on the proportion of dwellings sold (other than to an associated person) within 5 years of the completion of the purchase of the land by the developer. Where separate dwellings are sold progressively over the 5 year period, a developer may be granted partial refunds. The New South Wales Office of State Revenue (NSW OSR) has advised that guidelines will be provided by way of an order made by the Treasurer.
An application for the refund for surcharge purchaser duty and surcharge land tax must be made within 12 months after the completion of the sale of the new home to which the application relates and no later than 5 years after completion of the transfer of the residential-related property to the Australian corporation.
The refund provisions do not apply to all types of transactions on which surcharge purchaser duty is chargeable (eg declarations of trust over residential-related property or leases of residential land where a premium is paid) but only to transfers or agreements to transfer the residential-related property. In addition, the surcharge purchaser duty continues to apply on foreign persons (including Australian-based developers) that indirectly acquire residential land (ie by purchasing shares in companies or units in unit trusts that hold residential land).
Residential land – meaning of 'dwelling' – exemption for commercial residential premises
The NSW OSR has advised that commercial residential property will be exempt from surcharge purchaser duty and surcharge land tax, and that the Chief Commissioner will make a determination identifying classes of commercial residential property (eg purpose built student accommodation).
The NSW OSR advises that commercial residential properties are exempt from surcharge purchaser duty and the exemption is retrospective to 21 June 2016. Commercial residential properties will be exempt from surcharge land tax with effect from the 2017 tax year.
The Bill provides that the Chief Commissioner must assess or reassess the surcharge purchaser duty chargeable on a surcharge duty transaction on the basis that no surcharge purchaser duty is chargeable on the transaction where the Chief Commissioner has determined the property is not a dwelling for the purposes of determining the surcharge purchaser duty (eg the premises constitutes commercial residential premises).
In the case of a reassessment, the Chief Commissioner must refund any surcharge purchaser duty paid on the transaction if an application for the refund of the duty is made within 5 years after the initial assessment. The Bill does not appear to expressly provide for a refund of the surcharge land tax where the premises is taken to be commercial residential premises.
Exemption from surcharge purchaser duty and surcharge land tax for certain permanent residents – principal place of residence
For surcharge purchaser duty purposes, the Bill exempts certain foreign persons who are permanent residents (including New Zealand citizens holding special category visas under the Migration Act 1958 (Cth)) from a liability to pay the surcharge on transfers, or agreements for the sale or transfer, of residential-related property. The exemption will apply if the permanent resident uses and occupies the residential land concerned as a principal place of residence for at least 200 continuous days in the first 12 months after the liability to pay surcharge purchaser duty first arises on the property transferred.
The exemption commences on 20 June 2017 and will be granted if the person declares that they will complete the 200 day continuous period residence requirement.
For surcharge land tax purposes, the Bill extends the principal place of residence exemption (currently available as an exemption from land tax only, not the land tax surcharge) so that it will be available as an exemption from the surcharge land tax to foreign persons who are permanent residents (including New Zealand citizens holding special category visas under the Migration Act 1958 (Cth)). The exemption applies in respect of the 2018 land tax year and subsequent tax years, and requires the permanent resident to use and occupy the residential land concerned as a principal place of residence for at least 200 continuous days in the land tax year concerned.
The surcharge purchaser duty and surcharge land tax exemptions effectively operate as a limited further modification to the definition of 'foreign person' (which already excludes Australian citizens, New Zealand citizens holding special category visas under the Migration Act 1958 (Cth), and individuals ordinarily resident in Australia (ie lawfully been in Australia for 200 or more days within the preceding year and not subject to a legal time limitation on being in Australia)).
Other announcements in the Bill include:
- Off the plan purchases:
- A liability for duty is deferred (for up to 12 months) on an agreement for the sale “off the plan” of land on which a residence is to be erected only if the Chief Commissioner is satisfied that the purchaser intends to use and occupy the residence as a principal place of residence, starting no later than 12 months after the sale is completed, for at least 6 months (the 'residence requirement').
- If the purchaser does not meet the residence requirement, the purchaser will be liable to pay interest and penalty tax, backdated to the date of the agreement.
- First Home Buyers Assistance Scheme
- The dutiable value of property for which a concession may be claimed under the Scheme is increased from $650,000 to $800,000.
- The dutiable value of property for which an exemption may be claimed under the Scheme is increased from $550,000 to $650,000.
- Lender’s mortgage insurance is exempt if the premium for the insurance is paid on or after 1 July 2017.
- Crop insurance and livestock insurance are exempt if they are effected or renewed on or after 1 January 2018.
- Commercial vehicle insurance, commercial aviation insurance, occupational indemnity insurance and product and public liability insurance effected on or after 1 January 2018 are exempted from duty if the insured person is a small business (eg turnover of less than $2,000,000).