This article was written by Stuart Courtney, Leah Ranie, Cameron Forbes and Anthony Mourginos.
Queensland and New South Wales are following the Victorian lead by introducing new foreign investor stamp duty surcharges for transactions involving residential real estate. New South Wales has also announced new foreign investor land tax surcharges.
In Victoria, the proposed expansion of the foreign purchaser surcharge to short term accommodation (i.e. hotels, motels and serviced apartments) appears to be in doubt after a recent proposal to effectively reverse the amendments.
Here’s the state of play across the three states:
On 14 June 2016, as part of the Queensland State Budget, the Queensland Government introduced into Parliament the Duties and Other Legislation Amendment Bill (2016) (Bill). If passed, “additional foreign acquirer duty” (AFAD) will be imposed on direct and indirect purchases of Queensland residential real estate by foreign investors.
Key details of AFAD
We understand from the Bill that AFAD will apply to “direct and indirect” acquisitions of “AFAD residential land” by “foreign persons”. In summary, this means that:
- AFAD will be charged at a rate of 3% and will apply in a transfer duty, landholder duty and corporate trustee duty context (where AFAD applies, the top marginal rate of duty in Queensland will be 8.75%).
- “AFAD residential land” will comprise land that is, or will be, solely or primarily used for “residential purposes” and where:
Based on the above, and consistent with the Treasurer’s announcement of last week, it appears that AFAD is not intended to apply to commercial residential premises (i.e. hotels, motels and serviced apartments).
- there is, or will be, a building on the land designed or approved for human habitation by a single family unit;
- there is a building on the land which a person will refurbish, renovate or extend so that it becomes such a building; or
- the land is being developed so that it will become land referred to above.
- a “foreign person” will be:
The above definitions are substantially similar to the existing Victorian definitions with the following important exceptions:
- a foreign individual, being anyone other than an Australian citizen, a New Zealand citizen living in Australia, or a permanent resident of Australia;
- a foreign corporation, being any corporation incorporated outside Australia or a corporation in which a foreign person (together with related persons) holds at least 50% of the voting power / shares in the corporation; or
- a foreign trust is any trust in which foreign persons (together with related persons) hold at least 50%.
- the Commissioner does not appear to have the ability to exempt foreign persons from AFAD where they fit within certain policy parameters; and
- where a corporation or trust acquires AFAD residential land and becomes a “foreign corporation” or “foreign trust” within 3 years, the transaction will be reassessed as if the acquirer had been a foreign person (i.e. AFAD will be applied).
Transitional rules and enforcement
It is proposed that AFAD will apply only where a liability to duty arises on or after 1 October 2016 (i.e. any agreement for the acquisition of AFAD residential property entered into prior to this date will not be subject to AFAD). This is a small window of opportunity for foreign investors of residential land to pay no additional duty by entering into the relevant contract of sale before 1 October 2016.
The new AFAD provisions will also allow the Commissioner to place a charge on AFAD residential land to recover any unpaid transfer duty and AFAD. The landholder duty rules in relation to creating charges on land will also extend to AFAD.
New South Wales
Ahead of the 2016 / 2017 New South Wales budget which is to be delivered on 21 June 2016, the New South Wales Government has announced the introduction of a foreign investor surcharge of:
- 4% on the purchase of “residential real estate” by “foreign purchasers” commencing on and from 21 June 2016; and
- 0.75% on “residential real estate” owned by “foreign persons” commencing in the 2017 land tax year.
In the lead up to the budget, details on how the surcharges will apply are scant, for example, it remains to be seen whether they will apply in respect of commercial residential premises.
Additionally, the New South Wales Government has announced that the 12 month deferral for the payment of stamp duty for off-the-plan purchases of residential real estate will no longer apply to “foreign purchasers” and the land tax surcharge for “foreign persons” will not contain any tax-free threshold.
Further details regarding these measures and other previously announced measures will be outlined by the New South Wales Government when the 2016 / 2017 New South Wales budget is delivered on 21 June 2016.
The Victorian Government was in the process of amending the Victorian legislation to:
- extend the Victorian foreign investors stamp duty surcharge to “short term accommodation” (e.g. hotels, serviced apartments and student accommodation) for all transactions entered into on or after 1 July 2016;
- increase the rate of additional stamp duty payable on acquisitions of residential land by foreign purchasers from 3% to 7% for all transactions entered into on or after 1 July 2016 (raising the highest payable marginal stamp duty rate to 12.5%); and
- increase the rate of additional land tax payable by absentee persons who hold Victorian land from 0.5% to 1.5% for the 2017 land tax year onwards.
However, it has been proposed in the Legislative Council that the amending legislation should expressly exclude “commercial residential premises” (as that term is defined for GST purposes) from being subject to the Victorian foreign investors stamp duty surcharge. This would effectively reverse the proposed amendment outlined at bullet point one above.
King & Wood Mallesons has published several alerts on the Victorian foreign purchaser surcharge provisions, which can be found here and will continue to monitor the progress of any amendments and announcements.
What do you need to do?
Foreign investors looking to acquire Victorian, Queensland or New South Wales residential land and absentee persons who hold Victorian or New South Wales real estate should seek advice on whether they are (or will be) liable to pay additional duty or land tax.
The KWM tax team can assist with determining:
- whether an entity is a foreign purchaser or absentee person for the purposes of the Victorian, Queensland and New South Wales surcharge provisions (a bill for the New South Wales provisions is expected to be released shortly);
- whether any exemptions may be available; and
- what notification requirements may apply.