The conveyancing and property world has been hit by a bus in the form of new legislation, practice rules and procedures! Here are a few key changes that will ensure you don't miss your stop:
In the past, it was usual practice for purchasers to obtain a Land Tax Certificate. Now, thanks to recent changes to the Conveyancing Regulations, all Contracts entered into, on, or after 1 July 2016, now require the vendor to provide the Purchaser within 14 days of the due settlement date, a Land Tax Certificate that is no more than three months old . Supplying the purchaser with the Certificate is necessary whether it be clear or noting a charge over the land. The Certificate must be provided even in the event the vendor is not liable for Land Tax.
What this means for your vendor clients?
Unfortunately, obtaining the Certificate is not a simple task. When obtaining this Certificate on behalf of our clients, we need to obtain detailed information in relation to each vendor and how the property was originally acquired. For example, was the property purchased in the name of the Trust and what percentage of ownership was the property purchased in originally?
If the vendor isn't an Australian Citizen or their Country of Tax Residence isn't Australia, then we are required to provide more information such as the original Foreign Investment Review Board application number from the original purchase of the property.
All Land Tax Clearance Certificates and applications must be lodged electronically through an approved Office of State Revenue Service provider.
Changes that will hit the hip pockets of overseas buyers
Foreign Investor Surcharge – Stamp Duty and Land Tax Surcharges
From 21 June 2016, overseas residents purchasing residential land in NSW (including options to purchase residential land and nominations or assignment of options) will face a stamp duty surcharge of 4%. Primary Production land is excluded at this stage.
A Land Tax surcharge of .75% on residential real estate owned by foreign persons will begin in the incoming 2017 land tax year, kicking off at midnight on 31 December, 2016.
Who is classed as a foreign person?
In NSW a foreign person is defined in the Foreign Acquisitions and Takeovers Act 1975 as:
- an individual not ordinarily resident in Australia; or
- a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
- a corporation in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or
- the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or
- the trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or
- a foreign government; or
- any other person, or any other person that meets the conditions, prescribed by the regulations.
Note: In certain circumstances, an associate of a foreign person may be taken to be a foreign person even if the associate is not a foreign person (see subsection 54(7)).
There are other changes which have come into force which we will provide further information on at a later date.
Non-resident withholding tax
From 1 July, 2016 any vendor who isn't a resident will be subject to the purchaser keeping and paying the Australian Taxation Office (ATO) a 10% withholding tax from the purchase price when disposing of taxable Australian property valued at $2 million or more.
This new legislation also makes the purchaser accountable for withholding 10% of the market value and arranging payment to the ATO. Payments need to be made on settlement if a clearance certificate has not been provided. Penalties apply to purchasers who fail to withhold the required tax, and for late payment to the ATO.
All non-resident vendors should apply to the ATO for a clearance certificate on or before the exchange of contracts, providing the certificate to the purchaser before settlement. If the purchase doesn't receive the certificate and believes that the vendor is a non-resident then they will need to pay 10% of the purchase price to the ATO.
The knowledge condition can be used if the purchaser doesn't believe, or has reason not to believe that the vendor is a non-resident, in which case the obligation to pay withholding tax doesn't apply. Purchasers using this condition should use caution – if the ATO doesn't agree, they can impose penalties.
What does taxable Australian property and assets cover?
Generally speaking, land and assets include:
- Land (vacant or not) (including a Lease of Land)
- Residential and commercial property (including a Lease)
- Lease premiums paid for the Lease over real property in Australia
- Options or Assignments of Options (or the right to acquire property or assets)
- Mining, quarrying or prospecting rights where material is situated in Australia
- Indirect Australian real Property interests in Australian entities (including Trusts) whose majority of assets consist of Australian land or asset types noted above (for example: shares in a "land rich" company).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.