04 September 2017

Taxes on real estate deals - Australian State and Territory Budgets

With the exception of Western Australia, all States and Territories have now delivered their 2017-2018 Budgets. 

The trend of imposing taxes on foreign investment in real estate has continued, with South Australia announcing the introduction of a new transfer duty surcharge on the acquisition of real estate by foreign investors.

New South Wales, which already has duty and land tax surcharges, announced significant surcharge rate increases for both transfer duty and land tax.  Queensland has also increased the rate of land tax surcharge which applies to absentees.

Although it is not expected to be delivered until September, it is understood that the Western Australian Budget will announce the introduction of a 4% duty surcharge for foreign purchasers.

The table below summarises the state of play in relation to the various stamp duty and land tax surcharges across the nation.

State or Territory

Duty

Land tax

Potential relief for developers?

New South Wales

8% surcharge purchaser duty

0.75%

2% (from 1 January 2018)

Yes

Victoria

7% foreign purchaser additional duty

1.5% absentee owner surcharge

Yes

Queensland

3% additional foreign acquirer duty

1.5% absentee surcharge (individuals only)

Yes – ex gratia duty relief

Western Australia

4% surcharge is expected to be introduced

No surcharge currently applies

Not yet known

South Australia

4% foreign ownership surcharge from 1 January 2018

No surcharge currently applies

No

Tasmania, ACT and NT

No surcharge currently applies

No surcharge currently applies

Not applicable

The KWM Tax Team is available to assist you in understanding how these surcharges and the measures announced in the various State and Territory Budgets affect your business.

Set out below is an overview of the various Budget measures as they affect the Real Estate Sector.


New South Wales

The NSW Government’s Budget Statement acknowledged that the application of surcharges to foreign-owned residential property developers places these developers at a competitive disadvantage relative to Australian-owned developers.

To avoid the adverse impact this may have on the supply of new dwellings, a refund mechanism is to be introduced for an Australian-based foreign-owned developer to claim a full or partial refund of surcharge purchaser duty if they are an “Australian corporation” (i.e. a corporation that is incorporated under the Corporations Act 2001) which constructs and sells new homes on residential land within 5 years of the completion of the purchase of land by the developer. Refund applications must be made within 12 months after the completion of the sale of the new home by the developer.

To be eligible for a refund of the surcharge purchaser duty, the following requirements must be satisfied:

  • the corporation or a related body corporate of the corporation must have constructed a new home on the residential land to which the residential-related property relates after completion of the transfer of the property to the corporation;
  • the corporation must have sold the new home to a person other than an associated person of the corporation; and
  • the home must not have been 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.

The requirement to build a new home means that certain developers that merely subdivide the purchased land and sell off the subdivided lots will not be eligible for a refund. Further, a new home 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 refunded will be based on the proportion of dwellings sold (other than to an associated person) within 5 years of completion of the transfer. Where separate dwellings are sold progressively over the 5 year period, a developer may be granted partial refunds. 

While it is intended that the new arrangements will be backdated to apply from the commencement of the surcharges (i.e. it will apply to an eligible developer who acquired land on or after 21 June 2016), the commencement date for this refund mechanism has not yet been proclaimed as at the date of this budget update.

Similar refund arrangements are also being introduced in relation to the land tax surcharge.

From 1 July 2017, first home buyers will no longer be required to pay stamp duty on existing and new homes with a dutiable value up to $650,000 and will be entitled to stamp duty concessions on properties with a dutiable value between $650,000 and $800,000.

From 1 July 2017, the rate of foreign investor surcharge purchaser duty payable on the purchase of residential real estate by foreign persons was increased from 4% to 8%. This surcharge is in addition to the duty that is otherwise payable on the purchase of residential property. There are transitional provisions in the Act which provide that where an agreement for sale or transfer of the residential-related property was entered into before 1 July 2017 (but completed after this date), the prior rate of 4% continues to apply.

From 1 July 2017, only purchasers who intend to use and occupy residential properties as a principal place of residence for a continuous period of at least 6 months, starting no later than 12 months after the sale is completed, are eligible for the (up to) 12 months deferral of stamp duty liability charged on the sale of land “off the plan”.

Other key changes from the NSW Budget include:

  • introduction of a shared equity scheme from 1 July 2017 to assist people who would not otherwise be able to afford to own a home to become a home owner by purchasing a property with an “approved equity partner”; and
  • an exemption from foreign purchaser duty for permanent residents (including New Zealand citizens who hold a Special Category visa (subclass 444)) on their principal place of residence if they occupy the home for a continuous period of 200 days within 12 months of purchase, effective from 20 June 2017.

From the 2018 land tax year, the annual rate of the land tax surcharge on foreign home owners will be increased from 0.75% to 2%. The increase means that the top land tax rate applicable to such persons will increase from 2.75% to 4%.

From the 2018 land tax year, permanent residents (including New Zealand citizens who hold a Special Category visa (subclass 444)) will be exempt from surcharge land tax on their principal place of residence if they occupy the home for a continuous period of 200 days in the land tax year.

Victoria

Under the “off the plan” concession stamp duty is calculated on the purchase price less the cost of construction to be undertaken on or after the contract of sale is entered into. 

The Budget proposes to limit eligibility of the concession to certain purchasers.  A purchaser will now only qualify for this concession where it is either entitled to the first-home buyer stamp duty concessions (as discussed below), or is entitled to the principal place of residence concession on properties valued at $550,000.

This means that the concession will no longer be available to investors.

From 1 July 2017, first home buyers will not be required to pay stamp duty on properties with a dutiable value of up to $600,000, and will be entitled to duty concessions on properties valued between $600,000 and $750,000.  The purchaser must generally live in the property as a principal place of residence for at least 12 months to qualify for the exemption or concession.

From 1 July 2017, transfers of property between spouses and de facto partners will no longer be exempt from stamp duty.  However, the existing exemptions for the transfer of principal places of residence or the transfer of property following a breakdown in the relationship will continue to apply.

The sub-sale provisions of the Duties Act 2000 (Vic) have also been amended.  From 28 June 2017, the sub-sale provisions will be extended to apply where the grantee of a call option, the grantor of a put option (or both) obtains “additional consideration” for nominating another person to take a transfer of the property.

From 1 January 2018, the Government proposes to tax certain unoccupied properties in the municipal councils of Banyule, Bayside, Boroondara, Darebin, Glen Eira, Hobsons, Manningham, Maribyrnong, Melbourne, Monash, Moonee Valley, Moreland, Port Phillip, Stonnington, Whitehorse and Yarra through the introduction of a “vacant residential land tax”.  This land tax will apply to properties that are vacant for six months or more in the year.  The owner of the land will be liable for tax at 1% of the land’s capital improved value.

The new vacant residential land tax will also extend to properties on which construction and renovations are being undertaken in certain circumstances.  A property will be considered to be vacant in a tax year if, at the end of the year preceding the tax year, the construction or renovation was not completed and the construction or renovation commenced two years prior.  For example, if an owner commences renovation on a property in November 2017, and by December 2019 the renovation is not complete, the owner should be subject to the vacant residential land tax for the 2020 tax year.  However there is scope for the Commissioner to consider that certain land is not “vacant” if there is an acceptable reason for the construction or renovation not being completed within the allotted time frame.

Holiday homes and apartments that are used for work and located in the municipal councils listed above may be exempt from vacant residential land tax. 

From 2019, properties will now be valued through the Valuer-General Victoria annually instead of every two years.  This standardises the operation of the valuation process across Australia.

Queensland

A new 1.5% land tax surcharge is being introduced for “absentee” land owners with land holdings valued at $350,000 or more.

Absentee land owners are already subject to higher rates of land tax (and lower land value thresholds) when compared with individual taxpayers.  The intention is to introduce the 1.5% surcharge to be as an increase to the existing rates without any expansion of the existing concept of who is an “absentee” for land tax purposes.

The new surcharge rates will apply to land tax assessments issued on and after 1 July 2017, which will be based on a person’s Queensland landholdings as at midnight on 30 June 2017.

Changes are also being made to additional foreign acquirer duty:

  • to impose AFAD on chattels which can be directly linked to, or are incidental to the use and occupation of AFAD residential land in order to remove any potential incentive to shift value to the sale of chattels;
  • to ensure that AFAD is imposed where property is acquired by an agent on behalf of a foreign principal and where a contract to acquire land is entered into as a pre-incorporation contract.

South Australia

In terms of land-related duties and concessions, the duty concession for purchases of off-the-plan apartments has been extended for another 12 months, and purchasers of such apartments will benefit from a land tax exemption for 5 years.

Further, from 1 January 2018, foreign buyers and temporary resident purchasers of residential property will pay a 4% conveyance duty surcharge on top of the standard conveyance duty of 5.5%.

Tasmania

Under current Tasmanian law, where a purchaser acquires a house and land package (as part of one arrangement to acquire the land and improvements), the consideration taken to be paid for the dutiable transfer of land is increased by the value of any improvements agreed to be made to the land, either before or after its transfer.

As part of the “New Housing Incentive Package”, the Budget proposes to amend section 19(2) of the Duties Act (with effect from 1 July 2017) such that the consideration paid for a dutiable transfer of land will no longer be taken to include the value of any improvements that are:

  • agreed to be made to the land that are performed after the land transfer; and
  • for standard single-dwelling house and land packages, performed on the property after the agreement is entered into, but before the transfer of land occurs.

Full ad valorem duty will still apply where improvements have already been completed at the time of agreement and land transfer.

Australian Capital Territory

Conveyance duty for commercial transactions below $1.5 million will be halved for the 2017-18 financial year onwards and will be fully phased out y 2018-19.  A flat five percent rate will apply to the total value of a transaction where its value is equal to or greater than $1.5 million.

Conveyance duty for residential transactions will continue to be cut each year until it is fully phased out under the Government’s tax reform program.  In relation to the 2017-18 financial year, the highest marginal rate is now 4.91% (reduced from 5.09%).

From 7 June 2017 there will be a duty concession for:

  • House and land value up to $607,000; and
  • Vacant land up to $329,500

From 7 June 2017 there will be a duty concession for:

  • House and land value up to $895,000
  • Vacant land up to $434,500

The Government has introduced changes to the methodology for determining land tax, to establish a more equitable treatment between houses and units.

From 1 July 2018, the Government will extend land tax to all residential dwellings that are not the owner’s principal place of resident, whether they are rented or not.  Previously, land tax was only charged on residential properties that are rented or owned by a company or trust.

Northern Territory

The Northern Territory budget indicated a rise in the stamp duty rate on high-value properties, being 5.75% for conveyances where the dutiable value is $3 million or more but less than $5 million, and 5.95% where it is $5 million or more. 

The existing rate of 4.95% will continue to apply to property valued from $525,000 to under $3 million.  This measure is expected to raise $4.2 million from the 2017-18 year.

Key contacts

A Guide to Investing in Australian Real Estate

Investing Down Under offers a quick overview of the legal, taxation, FIRB and structuring issues you may encounter when investing in Australian real estate.

Investing in Australian Real Estate
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