Stamp Duty Relief for Australian-Based Foreign Developers

A bill has recently passed through both Houses of the NSW Parliament entitled the State Revenue Legislation Amendment (Surcharge) Bill 2017 (NSW) (Bill) which targets Australian-based developers that are foreign persons (Foreign Developer). It has received assent but is to commence on a date to be proclaimed. We await the proclamation, which is yet to occur but is expected soon.

 

Reason for the Bill

The purpose of the Bill is to provide some relief for Foreign Developers from the surcharge purchaser duty and land tax surcharge, the imposition of which has made it difficult for Foreign Developers to compete in NSW.

The amount of surcharge is assessed based on the taxable value of all residential land that the foreign person owns… 

Surcharge purchaser duty is additional duty payable by foreign purchasers as transferees on the transfer of residential property. As at 1 July 2017, the rate of surcharge is 8%. Land tax surcharge is additional land tax payable by foreign persons who own residential land in New South Wales, even if no land tax is payable. The amount of surcharge is assessed based on the taxable value of all residential land that the foreign person owns as at midnight on 31 December in the previous year of the payment year. During the 2018 land tax year, the rate of surcharge is 2%. 

 

Key summary

  1. The Bill will enable a Foreign Developer to apply for a refund of both Surcharge Purchaser Duty and Land Tax Surcharge and in some case an exemption from each in advance.
  2. The refund may be made in full or in part at the discretion of the Commissioner.

 

Background

By way of background, foreign persons are defined under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (Act) as including a corporation or trust (Person) in which an individual not ordinarily resident in Australia (alone or with one or more associates), a foreign corporation or a foreign government holds a substantial interest of at least 20% in that Person.
This summary focuses on off the plan developments.

 

Surcharge Purchaser Duty

Under the Bill, a Foreign Developer can apply for a refund on surcharge purchaser duty if the Chief Commissioner is satisfied with all of the following:

  1. There has been a transfer of residential-related property (Land);
  2. The Foreign Developer is an Australian corporation incorporated or taken to be incorporated under the Corporations Act 2001 (Cth);
  3. A new home which has not been previously occupied or used by any person for any purpose has been constructed by the Foreign Developer as owner of the Land and sold to a non-associated third party, or the Land has been subdivided for the purpose of new home construction, and then sold after issuance of the subdivision certificate;
  4. The application for refund is made within 12 months after completion of the sale of the new home or issuance of the subdivision certificate (at this stage, it is unclear as to whether it is the earlier or later of these events and whether “sale” means the first or last sale); and
  5. The application is made no later than 10 years after completion of the transfer of the Land to the Foreign Developer as transferee.

The amount to be refunded depends on the order made by the Treasurer which can be the amount paid in full or a lesser amount.
If the Chief Commissioner is of the opinion that the Foreign Developer is likely to become entitled to a refund of the full amount, an exemption may be applied for. However, the approval for exemption can be subject to conditions and these conditions can be varied by the Chief Commissioner at any time by notice. The approval can also be revoked by the Chief Commissioner at any time by notice and that revocation can be backdated. If the exemption has been revoked and backdated, stamp duty will be assessed as if the approval has never applied and as if liability for duty arose when revocation of the approval was notified.
If an exemption applies, it will remain in force unless and until revoked.

 

Land Tax Surcharge

A similar refund mechanism applies to land tax surcharge with the following variations:

  1. The application for refund must be made within 12 months after transfer of the new home from the Foreign Developer to a non-associated third party or issuance of the subdivision certificate (at this stage, it is unclear as to whether it is the earlier or later of these events and whether “sale” means the first or last sale);
  2. If the transfer of new home is completed before 21 June 2016, the application must be submitted by 21 June 2021. If the transfer is completed after 21 June 2016, then no later than 10 years after completion of that transfer.

Similarly, the amount to be refunded depends on the order to be made by the Treasurer which can be the amount paid in full or a lesser amount.

If the Chief Commissioner is of the opinion that the Foreign Developer is likely to become entitled to a refund of the full amount, an exemption can apply to one or more tax years. However, the approval for exemption can be subject to conditions and these conditions can be varied by the Chief Commissioner at any time by notice. The approval can also be revoked by the Chief Commissioner at any time by notice and that revocation can be backdated. If the exemption is revoked and backdated, surcharge land tax will be assessed or reassessed as if the approval has never applied in respect of that tax year. At this stage, it is unclear when liability for land tax will arise if exemption has been revoked.

 

If you would like further information on this publication, please contact: Mike Ellis or Yanlie Leung on +61 2 9261 5900.