Australia: Exemption and refund for surcharge purchaser duty and surcharge land tax now available in New South Wales

Revenue NSW has issued a Revenue Ruling that exempts Australian based developers that are 'foreign persons' from surcharge purchaser duty and surcharge land tax for new home development. The Ruling operates from 5 March 2018, when the legislation that was announced in the 2017/18 Budget came into effect.

The Ruling outlines when the Chief Commissioner will consider granting an exemption to an Australian corporation that is a 'foreign person' from paying surcharge purchaser duty on a transfer of residential related property or surcharge land tax for residential land. If the Ruling applies, a corporation may also be eligible for a refund of surcharge payments already made.

An Australian corporation is a corporation registered under the Corporations Act that is otherwise a 'foreign person' for NSW duty and land tax purposes, and includes an Australian corporation acting as trustee.

Snapshot of the current duty and land tax regimes

Surcharge purchaser duty

Surcharge purchaser duty is charged on various transactions, including transfers (and an agreement for the transfer) of residential related property in New South Wales by a 'foreign person'. A foreign person can be an individual, a corporation, the trustee of a trust, a foreign government, a foreign government investor and general partners of limited partnerships.

'Residential-related property' includes residential land and an option to purchase residential land in NSW. Residential land is broadly defined and includes land on which there is a building under construction that, when completed, will constitute one or more dwellings. Land used for primary production is excluded from the definition of residential land.

Duty is charged on a sliding scale up to 5.5%, and for residential land exceeding $3 million a premium rate of up to 7% applies. The surcharge duty rate for agreements entered into on after 1 July 2017 is 8% and is in addition to the duty already payable for the transaction.

Surcharge land tax

Surcharge land tax is imposed on residential land owned by a 'foreign person' in New South Wales as at midnight on 31 December in a year.

Broadly, land tax is imposed at a rate of 1.6% of the land value between the land tax threshold ($629,000 in 2018) and $3,846,000, and 2% applies over that value. The land tax surcharge rate is 2% for the 2018 land tax year onwards. The surcharge is in addition to any land tax already payable.

In what circumstances will the Chief Commissioner be satisfied the Australian corporation is entitled to a refund?

An Australian corporation will be entitled to a refund where it has paid an amount of surcharge purchaser duty or surcharge land tax and:

  • a new home has been constructed on the land by the corporation (or a related body corporate) and sold by the corporation to an unrelated third party without the home having been used or occupied before completion of that sale, other than as a display home; or
  • the land has been subdivided by the corporation for new home construction and sold by the corporation after the issue of a subdivision certificate.

Are there timing restrictions on when a refund will be given?

Surcharge purchaser duty may only be refunded if the refund application is made within 12 months after the completion of the sale of the new home or the issue of the subdivision certificate and no later than 10 years after completion of the transfer of the residential-related property to the corporation.

Surcharge land tax may only be refunded if the refund application is made within 12 months after completion of the sale of the new home or the issue of the subdivision certificate and:

  • if completion of the transfer of the residential land to the Australian corporation concerned occurred before 21 June 2016 – not later than 21 June 2021; or
  • in any other case – not later than 10 years after completion of the transfer of the residential land to the Australian corporation.

When will the Chief Commissioner consider granting an exemption?

A corporation (including a corporation acting as trustee) must apply for an exemption for surcharge purchaser duty and surcharge land tax. An exemption is not automatically granted by the Chief Commissioner.

If the exemption is granted, the corporation will be an 'exempt transferee' and will not have to pay the surcharge purchaser duty or land tax up front.

An exemption is available if the Chief Commissioner considers that the corporation is likely to become entitled to a refund of the full amount of surcharge purchaser duty chargeable on the transfer to which the application relates. For land tax, the Chief Commissioner must be satisfied that the corporation is likely to become entitled to a refund of the surcharge land tax payable by the corporation in respect of the land for a land tax year.

The Chief Commissioner may backdate the exemption and provide a refund in relation to transfers already made. For land tax, an exemption may be applied to a surcharge land tax liability arising before the exemption was granted.

An exemption for purchaser surcharge duty can apply to one or more transfers, including future transfers of residential related property. For surcharge land tax, the exemption may apply to one or more land tax years, including future land tax years.

What factors are relevant for an exemption application?

The Ruling outlines the various factors the Chief Commissioner may have regard to when deciding whether a corporation is entitled to an exemption, including:

  1. the corporation's past or present involvement in new home construction or the subdivision of land for new home construction;
  2. the corporation's plans for new home construction or subdivision of land for new home construction, as evidenced by, for example, corporate plans, prospectuses, annual reports or other similar publications;
  3. approval by FIRB to purchase real estate;
  4. development timetables;
  5. approval of finance by a financial institution;
  6. relevant development approvals; and
  7. any other matters considered relevant by the Chief Commissioner, such as a subdivision certificate and other approvals.

What's in the fine print?

The exemption for purchaser surcharge duty is only available for a transfer (or agreement for transfer) of residential-related property. The exemption will not apply to other transactions, for example, a declaration of trust over residential related property or a lease of residential land.

An exemption may be subject to conditions – for example, a requirement to report periodically on the progress of a development.

The Chief Commissioner can revoke an exemption for duty or land tax by notice to the corporation and the revocation can be backdated to when the surcharge liability would have arisen (but for the grant of the exemption).

Next steps

Any Australian corporation that is a 'foreign person' that has paid surcharge purchaser duty or surcharge land tax in New South Wales should consider applying for a refund where the land is used for building new homes or is subdivided and sold for new homes.

You should also consider applying for an exemption for future acquisitions of residential related land and for land that may be subject to surcharge land tax.

© Cooper Grace Ward Lawyers

Cooper Grace Ward is a leading Australian law firm based in Brisbane.

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.

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