Australia: Rebates for foreign developers and changes for first home owners – a review of the new NSW stamp duty regime

Last Updated: 7 July 2017
Article by Vanya Lozzi and Elly Ashley

Most Read Contributor in Australia, July 2017

On 27 June 2017, the NSW Government passed the State Revenue and Other Legislation Amendment (Budget Measures) Act 2017 (NSW) which has implemented changes to the current NSW stamp duty regime.

Two of those changes were:

  1. the introduction of a rebate and exemption process for foreign developers liable to the current 'foreign person surcharge'; and
  2. a revised First Home Owner incentive package.

The aim of both of these amendments is to increase housing affordability in NSW.

Impact on foreign investors

Surcharge increases

From 1 July 2017, foreign investors will experience an increase in:

  1. the transfer duty surcharge from 4% to 8% (surcharge purchaser duty); and
  2. the land tax surcharge from 0.75% per annum to 2% per annum from the 2018 land tax year (surcharge land tax).

Please click here for a more detailed summary of the existing 'foreign person surcharge' regime.

Surcharge rebates

As a result of the recent amendments, foreign developers may now be entitled to a rebate of any surcharge purchaser duty or surcharge land tax paid in respect of their purchase of residential land.

To be eligible for a rebate, the foreign developer must:

  1. be an 'Australian corporation', being a corporation that is incorporated pursuant to the Corporations Act 2001 (Cth);
  2. have constructed a new home on the land after completion of their contract for sale and have sold that new home to a person other than an associated member of the corporation; and
  3. make an application to the Office of State Revenue (OSR) within five years of the date of completion of their contract for sale.

With respect to both surcharge rebates, the proportion of the surcharge that will be refunded is based on the proportion of dwellings sold within five years of the completion of their contract for sale. Where separate dwellings are sold progressively over the five year period, an eligible developer may be granted partial refunds.

The OSR will shortly be releasing guidelines as to how they will be regulating applications for surcharge rebates.

Surcharge exemptions

From 1 July 2017, "commercial residential property" will be retrospectively exempted from surcharge purchaser duty. This means that foreign persons who have paid either the surcharge purchaser duty or surcharge land tax duty in respect to "commercial residential property" will be entitled to a refund.

The NSW Government has not yet defined what will be considered "commercial residential property". If the NSW Government was to adopt the definition used in the A New Tax System(Goods and Services Tax) Act 1999 (Cth) and in the Foreign Person Acquisition Takeover Act 1979 (Cth) then the class of premises would include acquisitions in:

  1. a hotel, motel, inn, hostel or boarding house;
  2. a premise used to provide accommodation in connection with a school; and
  3. a caravan park or camping ground.

Impact on first home owners

The NSW Government has introduced a comprehensive package to assist first home buyers by boosting housing affordability. The changes which are effective from 1 July 2017 include:

  1. the introduction of the First Home Buyers Assistance scheme (FHBAS). Under the FHBAS, first home buyers will be:
    1. exempt from transfer duty for both new and existing properties valued up to $650,000; and
    2. eligible for transfer duty reductions for properties between $650,000 and $800,000.
  2. changes to the existing First Home Owner Grant (New Homes) Scheme. As a result of the changes, first home owners will now only be able to receive the $10,000 grant if:
    1. they are purchasing a new home worth up to $600,000; or
    2. they are building a new home worth up to $750,000 (being the total value of the land and building).
  3. changes to the concession for residential off-the-plan purchases (which allows transfer duty to be deferred for up to 12 months). From 1 July 2017, this concession will no longer apply to investors and will solely target owner-occupiers;
  4. the abolishment of Insurance duty on lenders mortgage insurance; and
  5. the introduction of a Shared Equity Scheme. The Shared Equity scheme will apply to a first home buyer who purchases a property with an "approved equity partner". Guidelines for the operation of this scheme, including the list of persons considered to be an "approved equity partner" are still being developed by the OSR and should be available later this month.

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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