Australia: The NSW foreign person duty and land tax surcharge measures

Last Updated: 12 May 2017
Article by Vanya Lozzi

Most Read Contributor in Australia, September 2017

In June 2016, the New South Wales Government announced that as part of the 2016/2017 Budget that the following revenue measures would be introduced:

  • a 4% stamp duty surcharge on the purchase of residential land by foreign purchasers (commencing on 21 June 2016); and
  • a 0.75% land tax surcharge on residential land owned by foreign persons commencing in the 2017 land tax year.

These measures were enacted through changes to the Duties Act 1997 (NSW) (Duties Act).

Nearly a year on, we provide a refresher on the detail of these changes and how they impact "foreign persons" looking to purchase "residential land" in New South Wales.

Who is a "foreign person"?

Under the Foreign Acquisitions and Takeovers Act 1975 (FIRB Act), a "foreign person" includes:

  • an individual who is not ordinarily resident in Australia;
  • a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a "substantial interest" (which usually turns on matters such as the percentage of the total issued shares held by the individual); or
  • a foreign government.

The Duties Act definition of "foreign person" mirrors the FIRB Act definition, but modifies it as follows:

  • an Australian citizen is taken to be ordinarily resident in Australia, whether or not the person is ordinarily resident in Australia under that definition; and
  • a New Zealand citizen who holds a special category visa, within the meaning of section 32 of the Migration Act 1958 of the Commonwealth, at any particular time is taken at that time to be an individual whose continued presence in Australia is not subject to any limitation as to time imposed by law.

What is "residential land"?

Residential land is defined under the Duties Act to mean any of the following (provided that it is not used for primary production):

  • a parcel of land on which there are one or more dwellings, or a parcel of land on which there is a building or buildings under construction that, when completed, will constitute one or more dwellings;
  • a strata lot, if it is lawfully occupied as a separate dwelling, or suitable for lawful occupation as a separate dwelling;
  • a utility lot (within the meaning of the Strata Schemes Management Act 2015 (NSW)), if its use is restricted to the owner or occupier of a strata lot referred to in paragraph (b);
  • a land use entitlement, if it entitles the holder of the land use entitlement to occupy a building, or part of a building, as a separate dwelling;
  • a parcel of vacant land that is zoned or otherwise designated for use under an environmental planning instrument (within the meaning of the Environmental Planning and Assessment Act 1979 ) for residential purposes or principally for residential purposes.

When does the duty surcharge apply?

The duty surcharge is payable on the purchase of "residential land" by a "foreign person" (in addition to the standard duty). It may also be payable on the purchase of shares in a private company where the private company owns any "residential land".

What if a "foreign person" entered into an option to purchase "residential land" before 21 June 2016 but exercises their option after 21 June 2016?

The duty surcharge is not payable on a transaction that arises out of an exercise of an option, if that option was granted before 21 June 2016.

New Purchaser/Transferee Declaration

The Office of State Revenue requires a completed "Purchaser/Transferee Declaration" form to be provided when a contract for the sale of land (entered into after 21 June 2016) is submitted for stamping. Under this form, the purchaser must declare whether he/she/it is a "foreign person".

This information is likely to be shared with the Foreign Investment Review Board (FIRB) to assist in undertaking compliance to ensure that "foreign persons" who have purchased residential land have also obtained prior FIRB approval to do so.

Are there any exemptions for Developers who are "foreign persons"?

Prior to the introduction of the 2016/17 Budget measures, the Property Council of Australia lobbied the NSW Government and other State governments to exclude property developers from new surcharges insofar as they would relate to development sites. Only the Queensland Government and Victorian Government responded favourably.

Accordingly a developer, who is "foreign person", should factor in the additional duty and land tax payable on a NSW development site they intend purchasing, where that site is "residential land" for the purposes of the Duties Act.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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