Stamp Duty Surcharge, when does it apply?

Foreign Purchasers are from 1 July 2015 liable for additional stamp duty on residential purchase where the purchase is after 1 July 2016. The higher rate of 7% will be applied on top of the usual rates of duty for the purchase of residential. There is no exemption for principal place of residence

It will also effect the “Off the Plan” purchases  where nomination done after 1 July 2016 where there is a trigger of  the sub-  sale provisions (development or consideration)  and will attract the duty.

All manner of sales will be effected including the following:

  • residential sales;
  • gifts of property;
  • leasing  in certain circumstances; and
  • transfers of estate interests in deceased estates.

There is still the exemption of land  transferred  under a will where it has been left to a foreign natural person, but otherwise the amendment has made no provision for concessional rates of duty applying,  as is the case now where a foreigner will not be eligible for pensioner discounts or any other concessions which may be offered in the future.

What are the key features?

Definitions – It will apply to residential property purchased by a foreign  purchaser, a foreign company or a foreign Trust.

Residential property is defined as:

  • land designed and constructed solely or primarily  for residential purposes  and maybe lawfully used as a place of residence
  • land that is vacant but will have a residential premises built on it.

Dual Purpose Property is also caught if the land  will be primarily used for residential purposes and in that case, the whole of the land will be dutiable including the commercial part.

 A Foreign Purchaser is defined in the negative – that is if you are NOT:

  • a citizen or permanent resident of Australia; or
  • a NZ citizen with special category Visa (444).

A Foreign Corporations  includes:

  • corporations incorporated outside Australia; or
  • incorporated in Australia if the natural person another foreign corporation or trustee of a foreign trust has a controlling interest. (see below).

A Foreign trusts is where a trust is where a foreign natural person corporation in the trustee of another trust has a substantial interest.

Controlling Interest means where a person or entity has:

  • position of control of 50% of votes (voting power);
  • more than 50% of the issued shares;
  • has the ability to influence  the outcome of the decisions about the companies  financial and operating policies (the practical influence- even if that practice or pattern of behavior involves the breach of an agreement or breach of trust);
  • associated person can include a relative, a partnership, another corporation or a trustee of a trust  (even if  not a foreign natural person).

Absentee Owners pay higher land tax with updates to the Land Tax  Act 1958  from 1 January 2016 and rising charges 1 January 2017

An additional Land Tax for absentee owners of additional 0.5% on all properties from 1 January 2016 –both commercial and residential.

From 1 January 2017 the rate will rise to a 1.5% surcharge for foreign buyers.

It equates to an extra amount of land tax payable of $5,000 per $1 million of unimproved land value.

Are you an Absentee Landlord?

‘absentee owner’

The concept of an ‘absentee owner’ is very similar to the concept of a ‘foreign purchaser’ relevant to the stamp duty surcharge. An absentee corporation or trust looks to see whether there is an absentee ‘controlling interest’ directly or indirectly in the corporation or trust.

Broadly, for a corporation, a ‘controlling interest’ is an interest of more than 50% of the shareholding, voting power or the ability to control the composition of the board. Similar to the stamp duty surcharge, it will apply to an Australian incorporated company that holds taxable land if there are foreign controlling interests up the chain.

It does not include taxpayers who actively conduct business or activities on the land.

There is discretion not to apply in both cases- exercisable by the State Treasurer where there is controlling interest in a foreign. It is to safeguard those investors who are adding or redeveloping and adding to the housing stock in Victoria.  Really to cover off those investors who are in the market already. Application will of course take time and effort. The guidelines are not yet in the Government Gazette.

The Government does not expect the charges to have any impact on foreign purchasers.  The charges of like surcharges are now current in New South Wales, Victoria and Queensland.

If you have any queries regarding the above, please contact Pippa Sampson of our office.