Surcharges on stamp duty and land tax for foreign persons - will it affect you?
Apr 24, 2017The New South Wales Government introduced legislation last year bringing into effect surcharges on stamp duty and land tax, to be payable on residential property purchased or owned by anyone falling within the definition of a “foreign person”.
Who is a Foreign Person?
Section 4 of the Foreign Acquisitions and Takeovers Act 1975 (as modified by Section 104J of the Duties Act 1997) defines a foreign person as someone who is not “ordinarily resident” in Australia and can be:
- An individual;
- A company;
- A trust;
- A foreign government;
- a foreign government investor; or
- partners in limited partnerships.
Section 5 of the Foreign Acquisitions and Takeovers Act 1975 provides that, other than an Australian Citizen, an individual is ordinarily resident in Australia (i.e. not a foreign person) if, at the relevant time (e.g exchange date or 31 December):
- they have physically been in Australia for 200 or more days in the preceding 12 months, and
- at that time:
- the individual is in Australia and the individual’s continued presence in Australia is not subject to any limitation as to time imposed by law, or
- the individual is not in Australia but, immediately before the individual’s most recent departure from Australia, the individual’s continued presence in Australia was not subject to any limitation as to time imposed by law.
So by way of example, if you have been in Australia for 200 days in the preceding 12 months, but you are here on a visa that has an expiration date, then you will be considered a foreign person.
New Zealand citizens who hold a Special Category Visa are not subject to any time limits on their visa which means they are not classed as a foreign person.
There has also been a recent Revenue Ruling issued by the Chief Commissioner which sets out his interpretation of “Foreign Person” for both stamp duty and land tax purposes.
Surcharges of stamp duty and land tax
Surcharge Stamp Duty
When an interest in property is transferred, stamp duty becomes payable by the purchasers/transferees. Stamp duty is calculated on the taxable value of the unencumbered land. This means the value of the bare land, and does not include the value of any of the structures built on it. It must be paid within 3 months from the liability arising e.g the date of exchange of Contracts.
From 21 June 2016, any transaction involving residential land in which one or more of the purchasers/transferees are foreign person(s) will attract a 4% surcharge in addition to the stamp duty already payable (see Chapter 2 of the Duties Act 1997).
For example:
A (a foreign person) buys residential property for $2.5 million
Duty payable on $2.5 million is $122,990
Surcharge of 4% on $2.5 million is $100,000
Total payable is $122,990 + $100,000 = $222,990
If there is more than one purchaser/transferee, and not all are classed as a foreign person, then the surcharge is calculated on the proportionate taxable value of the Foreign Person’s share.
For example:
A (a foreign person) and B (an Australian citizen) purchase a residential land valued at $1.2 million as joint tenants
Duty payable on $1.2 million is $51,490
Surcharge of 4% on $600,000 (50% of dutiable value) is $24,000
Total payable is $51,490 + $24,000 = $75,490
Foreign Person(s) do not get the benefit of the extended period to pay stamp duty on “Off the Plan” transactions granted under Section 49A of Duties Act 1997.
Surcharge Land Tax
Section 5A of the Land Tax Act 1956 imposes a 0.75% land tax surcharge from the 2017 land tax year onwards for land owned by a foreign person.
The principle place of residence exemption does not apply to property owned by foreign person(s).
If property is owned by more than one person and not all are classed as a foreign person, then the taxable value is reduced by the taxable value of any share owned by a non-foreign person.
If a foreign person owns residential property as a joint tenant the foreign person will be individually liable for the surcharge land tax, instead of all joint owners being jointly liable as is the normal situation for joint owners.
So if you are a foreign person and owned property on 31 December (the date land tax is assessed for the coming year) you should have received your 2017 Land Tax Assessment applying the surcharge.
Contact the Shire Legal team if you have any questions.
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