Foreign purchasers of residential land in NSW are now exposed to additional stamp duty and land tax charges, following changes to State taxes as part of the NSW 2016 State Budget. Foreign purchasers must pay a stamp duty surcharge of 4 per cent on the acquisition of residential real estate. A land tax surcharge of 0.75 per cent has also been imposed on the taxable value of residential land owned by foreign persons.
The changes follow similar measures recently adopted by Victoria and Queensland, bringing NSW into line with those States.
Stamp duty surcharge
What has changed?
- A stamp duty surcharge of 4 per cent applies to foreign purchasers on the purchase of residential land. The surcharge is in addition to the normal ad valorem rate of duty paid by all purchasers of land.
- Foreign purchasers are also no longer entitled to the 12 month deferral for payment of stamp duty for off-the-plan purchases of residential land.
What land is affected?
Residential-related property which includes residential land or an interest in residential land but excludes primary production land. Broadly, residential land includes a parcel of land (including a strata lot or land use entitlement) on which there is or is being constructed one or more dwellings or a parcel of vacant land zoned or otherwise designated for residential purposes.
Who is affected?
Foreign persons which are defined by reference to the Foreign Acquisition and Takeovers Act 1975 and, in general terms, include:
- an individual not ordinarily resident in Australia (except for Australian citizens and New Zealand citizens who hold a special category visa);
- a corporation or trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest (being 20% or more); or
- a corporation or trustee of a trust in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest (being 40% or more).
Essentially this means that any foreign person needing to obtain foreign investment approval to acquire residential land in NSW will most likely be liable to pay the stamp duty surcharge.
When do the changes apply?
The changes apply to all contracts entered into on or after 21 June 2016.
Land tax surcharge
What has changed?
- A land tax surcharge of 0.75 per cent will be charged on the taxable value of residential land owned by foreign persons. This is in addition to the general rates of land tax in NSW which can be up to 2 per cent of the land value.
- Foreign persons will not be eligible for the tax free threshold to exempt land below the specified value in the relevant tax year from land tax.
- There is no exemption from the land tax surcharge for land owned by foreign persons as a principal place of residence, which means foreign persons must pay the surcharge notwithstanding that the property may be exempt from the general rates of land tax under the principal place of residence exemption.
What land is affected?
Residential land, which has the same meaning as in the Duties Act 1997 referred to above in relation to the stamp duty surcharge.
Who is affected?
The land tax surcharge applies to the same foreign persons as the stamp duty surcharge.
When do the changes apply?
From and including the 2017 land tax year which means it will apply to the taxable value of residential land owned by a foreign person as at midnight on 31 December 2016.
In conclusion
For foreign persons looking to acquire residential land in NSW, consideration will need to be given to the implications of the stamp duty and land tax surcharges in respect of both initial acquisition costs as well as holding costs of the investment.
Post by Patrick Pilton