NSW takes another bite of Foreign residential landowners

27. January 2017

The NSW State Government has taken further steps in claiming revenue from foreign land owners.

As a result of the 2016 NSW Budget, a 4% surcharge duty on acquisitions of residential land in NSW by foreign purchasers, will apply to all contracts entered into from 21 June 2016.

The duty is calculated by reference to the dutiable value of the land (generally the purchase price), and is in addition to the standard stamp duty imposed and payable upon acquisitions of land. The surcharge duty will have application irrespective of whether the foreigner is an investor or otherwise, and extends to options to acquire residential land.

Additionally, a land tax surcharge of 0.75% will apply to the taxable value of residential land in NSW owned by foreign persons, commencing in the 2017 land tax year (31 December 2016). These foreigners will also not be entitled to the land tax tax-free threshold, and no principal place of residence exemption will apply for the purposes of the surcharge.

Are you a Foreign Person?

A foreign person is taken to include:

  1. an individual not ordinarily resident in Australia (except for Australian citizens irrespective of where they reside, and New Zealand citizens who hold a special category visa); or
  2. an individual who is not ordinarily resident in Australia, and who holds a substantial interest (20% or more) in a corporation or trust; or
  3. two or more individuals who are not ordinarily resident in Australia, and who hold substantial interests (40% or more) in a corporation or trust.

An individual will be “ordinarily resident” if they have actually been in Australia during 200 or more days in the 12 month period immediately preceding the purchase.

What is Residential Land?

Residential land is defined broadly to include any of the following:

  1. a parcel of land on which there are one or more dwellings, or partially completed dwellings (such as a house);
  2. a strata lot, utility lot or a land use entitlement that is or relates to a separate dwelling; and
  3. a parcel of vacant land that is zoned or otherwise designated for use for residential or principally for residential purposes.

It does not include any land used for primary production, nor does it apply to commercial premises.

For example, the types of property that will attract the duty surcharge in NSW include:

  1. established homes and residential apartments;
  2. a parcel of land on which there is a home or a residential apartment block under construction; and
  3. vacant land (including property development site) that is zoned or designated for residential purposes.

Application to Landholder Companies & Trusts

Where one or more foreign persons acquire an interest in a residential landholder, such as shares in a company, they will be liable to the surcharge to the extent that the landholding is residential.

Furthermore, defining foreign persons is important, particularly where trusts are involved, as a trustee of a discretionary trust will be deemed to be “foreign” where the beneficial interest in the income or capital is held by a foreign person.

This is because, under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), a beneficiary of a discretionary trust is taken to be entitled to 100% of the trust’s income and capital, irrespective of whether there has been a distribution in their favour. Accordingly, if a beneficiary is not ordinarily in Australia, the trustee will be considered a “foreign person” and hence liable for the surcharges when the trust acquires or holds residential land at the relevant taxing points.

If you wish to know more please contact us at Economos Chartered Accountants