The New South Wales (NSW) Government has introduced a new refund mechanism and exemptions from surcharge duty and land tax for Australian-based foreign developers, provided certain requirements are met.
The new measures apply both retrospectively to the date the surcharge provisions were introduced and prospectively to new acquisitions so opportunity to seek refunds and to claim exemptions going forward.
The new refund mechanism and exemptions replace the refund mechanism included in the NSW Budget Measures in June 2017 to: o provide an opportunity for reputable developers to obtain pre-approval for ongoing exemption status rather than having to wait to obtain a refund, o extend the availability of the concession to developers who sub-divide and `prepare' land to home buyers who may engage a separate builder, and o extend the time available for the developer to sell the residential land to 10 years (instead of 5 years) from time of purchase.
The above is due to take effect from a date of proclamation (yet to be announced).
With effect from 21 June 2016, Revenue NSW introduced a `foreign purchaser surcharge' of 4 per cent to the direct and indirect acquisition of `residential land' by foreign persons. The rate of the surcharge was subsequently increased to 8 per cent with effect from 1 July 2017. A foreign land tax surcharge of 0.75 per cent was also introduced, which is due to increase to 2 per cent from 1 January 2018. The State Revenue Legislation Amendment (Surcharge) Act 2017 (NSW) (the Act) was enacted on 30 November 2017. The Act makes amendments to the Duties Act 1997 (NSW) and the Land Tax Act 1956 (NSW) to provide exemptions from, and refunds of, surcharge purchaser duty and surcharge land tax otherwise payable on the acquisition and holding of residential land by a developer that is an indirectly foreign owned Australian corporation (i.e. incorporated under the Corporations Act 2001 (Cth)).
These measures were first announced in the 2017-18 NSW Budget earlier this year and, following industry consultation, have changed from those in the State Revenue and Other Legislation Amendment (Budget Measures) Act 2017 (NSW), which are repealed by the new Act and had not yet commenced. The policy intent of these measures is to boost NSW housing supplies in a timely manner by putting foreign-owned residential property developers on an equal competitive footing from a duties and land tax perspective with Australian-owned developers.
Broadly, in order to obtain a refund, the following must be satisfied:
the land must be:
o used for the construction of brand new homes and the homes must be sold without being used or occupied at all (other than as a display home); or
o subdivided and sold for the purposes of the construction of brand new homes after a subdivision certificate is obtained. This now extends coverage of the measures to more developers compared to the previous measures;
any sales must be made to unrelated third parties; and
applications for a refund must be made within 12 months after completion of the sale of the new home or the issue of a subdivision certificate and within 10 years after the completion of the transfer of the residential land to the Australian corporation (up from the original 5 years in order to accommodate larger staged developments that may otherwise fall outside the 5 year time limit). If completion of the transfer of the residential land to the Australian corporation concerned occurred before 21 June 2016 then any application must be made by 21 June 2021.
The amount of the refund to which an Australian corporation will be entitled will be determined in accordance with an order to be made by the Treasurer and published in the Gazette. This order has not yet been made. The amount refunded may be the full amount of surcharge paid or a lesser amount, as determined under the Treasurer's order.
In addition, reputable builders and developers will now have the option of applying to the Chief Commissioner of State Revenue to be an `exempt transferee' such that they will not be liable to pay any duty or land tax surcharges upfront and then have to claim a refund later (i.e. removing the need to fund the surcharge amount for the life of the development). This will only be available if the developer is likely to satisfy the requirements for obtaining a refund of the full amount of surcharge. Guidelines setting out in more detail the criteria that applicants will need to be meet and documentation required to support an application, will be released by the Chief Commissioner of State Revenue in due course. This exemption can be given subject to conditions and may be revoked if the conditions are not met (and any prior surcharges would need to be repaid).
It should also be noted that the measures only apply to transfers and agreements to transfer of residential land by foreign persons, and not other dutiable transactions such as declarations of trust, surrenders, foreclosures, vestings, leases etc. Also, the measures do not apply to surcharge landholder duty.
This is a great opportunity for Australian-based foreign developers to reclaim any surcharge duty and land tax paid to date and to seek exemptions from surcharge duty and land tax going forward.
Foreign developers with NSW land should seek to confirm if they fall within the Guidelines as soon as they are available and, if so, apply for exempt status as soon as possible. Depending on when the Guidelines become available, obtaining exempt status before the issue of land tax notices in 2018, should help to remove the administrative and costly burden of paying upfront and seeking a refund once the land is sold. Further, having these pre-approvals in place where possible will provide developers with greater certainty and the ability to move more quickly in relation to their acquisitions.
Where either pre-approval is obtained, or if refunds are intended to be sought after sales, it will be important that developers properly understand and are conscious of the requirements of the exemption and how they apply to their projects to ensure that they do not inadvertently disqualify themselves from the exemption (despite the fact that they may fall within the intended policy). We would be pleased to help you navigate these changes.