NSW Government to impose increased stamp duty and land tax surcharges on foreign persons (including foreign owned developers)

The NSW Budget Statement (released on 20 June 2017) has provided further details on how the increased stamp duty and land tax surcharges will affect foreign owned developers.

To recap, on 1 June 2017, the NSW Government announced its intention to increase the surcharges as such:

• the foreign purchaser stamp duty surcharge from 4% to 8%; and • the foreign owner land tax surcharge from 0.75% to 2%. The surcharges apply to the acquisition and ownership of residential real estate. It seems from the Budget Statement that the surcharges will initially be imposed on all foreign persons, including foreign owned developers, but a refund will be provided to “Australian-based” foreign owned developers provided they sell the developed properties within 5 years. The refund is stated to be available retrospectively on all foreign investor surcharges which have been paid since the surcharge regime commenced. No further detail has been provided at this stage as to: • what threshold must be met before a foreign owned developer is considered “Australian- based”; • what will happen if some but not all of the developed properties are sold within the 5-year period; and • whether the developed properties will be treated as sold at the date of exchange or the completion of the relevant sale contract. While the Budget Statement states the intention is to correct the competitive disadvantage placed on foreign owned developers as against Australian owned developers, the proposed surcharge regime will place an even greater cash-flow disadvantage on foreign owned developers and will affect overall project feasibility. Further, the Budget Statement has confirmed the NSW Government’s intention to remove the availability of the 12 month stamp duty deferral for ‘off the plan’ sales to investors and foreign purchasers. On and from 1 July 2017, the stamp duty deferral will only be available to owner occupiers.

Summary

  1. Foreign owned purchasers of residential property will be liable to pay an 8% stamp duty surcharge in addition to normal stamp duty on and from 1 July 2017;
  2. Foreign owned landholders will be liable to pay the increased land tax surcharge of 2% in addition to normal land tax in respect of residential property owned as at midnight on 31 December 2017;
  3. Australian-based foreign owned developers will be granted a refund of surcharges paid, provided they sell the developed properties within 5 years;
  4. The refund regime will be backdated to apply from the commencement of the surcharges; and the 12 month stamp duty deferral on ‘off the plan’ sales will only be available to owner occupiers on and from 1 July 2017.