Stamp duty and land tax surcharges for foreign developers ... · PDF fileStamp Duty and Land...

Stamp Duty and Land Tax Surcharges for Foreign Developers and Investors

A guide to the operation of the new surcharges in Vic, NSW and Qld

Duty surcharges ‐ how they work

• Apply to agreements for transfer and transfers of land to foreign persons or entities

• Also apply to acquisitions of significant interests in landholding companies and unit trusts by foreign persons or entities

• Payable by transferee of land or acquirer of shares/units• Payable in addition to standard rate of duty• Applied to full dutiable value of property• Concessions do not apply • Normal exemptions apply

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Victoria New South Wales Queensland

Name Foreign Purchaser Additional Duty (FPAD)

Surcharge PurchaserDuty (SPD)

Additional Foreign Acquirer Duty (AFAD)

Start date 1 July 2015 21 June 2016 1 October 2016

Rate 7% 4% 3%

Property Residential property Residential land AFAD residential land

Transferee Foreign purchaser Foreign person Foreign person

Interest Direct or indirect Direct or indirect Direct or indirect

Change of intention? Yes No No

Treasurer’s exemption regime?

Yes No Yes

Duty surcharges ‐ an overview

Key concepts ‐ Foreign purchaser

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Category Victoria New SouthWales

Queensland

Individual Foreign natural person

Foreign person Foreign individual

Corporation Foreign corporation Foreign person Foreign corporation

Trust Foreign trust Foreign person Foreign trust

Key concepts – Foreign individuals

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Victoria

Foreign natural person

New South Wales

Foreign person

Queensland

Foreign individual

Natural person who is not:

• An Australian citizen;

• An Australian permanent resident; or

• A New Zealand citizen with a special category visa

Individual who is not ‘ordinarily resident’ in Australia as defined in the Foreign Acquisitions and Takeovers Act 1975

Australian citizens taken to be ordinarily resident in Australia

Non‐Australian citizens must satisfy 200 days test

Natural person who is not:

• An Australian citizen;

• An Australian permanent resident; or

• A New Zealand citizen with a special category visa

Key concepts – Foreign companies

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VictoriaForeign corporation

New South WalesForeign person

QueenslandForeign corporation

• A corporation incorporated outside Australia; or

• An Australian corporation in which one of the following persons has a ‘controlling interest’:

A foreign natural person

A foreign corporation

The trustee of a foreign trust

• A corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a ‘substantial interest’; or

• A corporation in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an ‘aggregate substantial interest’

• A corporation incorporated outside Australia; or

• A corporation in which foreign persons or related persons of foreign persons have a ‘controlling interest’

Key concepts – Foreign trusts

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VictoriaForeign trust

New South WalesForeign person

QueenslandForeign trust

A trust in which one of the following persons has a ‘substantial interest’:

• A foreign corporation

• A foreign natural person

• Another person that holds the substantial interest as trustee of another foreign trust

• The trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a ‘substantial interest’; or

• The trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an ‘aggregate substantial interest’

A trust in which at least 50% of the trust interests are held by:

• A foreign individual;

• A foreign corporation;

• A foreign trustee; or

• A related person of any person referred to above

Key concepts – Controlling/substantial interest in a corporation

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VictoriaControlling interest

New South WalesSubstantial interestAggregate substantial interest

QueenslandControlling interest

A foreign person (alone or with associates):

• Has more than 50% of voting power or potential voting power;

• Has more than 50% of issued shares; or

• Is deemed by the Commissioner to have a controlling interest

• A foreign person (alone or with associates):

Has at least 20% of voting power or potential voting power; or

Has an interest of in at least 20% of the shares

• Two or more persons (by themselves or with associates) have at least 40% of voting power or potential voting power, or at least 40% of shares

One or more foreign persons or related persons of foreign persons:

• Has at least 50% of voting power or potential voting power;

• Has at least 50% of issued shares; or

Key concepts – Substantial interests in a trust

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VictoriaSubstantial interest

New South WalesSubstantial interestAggregate substantial interest

QueenslandInterest of at least 50%

A foreign person (alone or with associates):

• Has a beneficial interest of more than 50% of capital of trust estate;

• Is deemed by the Commissioner to have a controlling interest

Any potential beneficiary of discretionary trust is deemed to have beneficial interest in maximum percentage of capital of trust trustee can distribute to them

• A foreign person (alone or with associates):

Has a beneficial interest in at least 20% of income or property of trust; or

• Two or more persons (by themselves or with associates) have beneficial interests in at least 40%of income or property of trust

• Any potential beneficiary of discretionary trust is deemed to have beneficial interest in maximum percentage of income or property of trust trustee can distribute to them

• At least 50% of trust interests held by one or more foreign persons (or related persons)

• Trust interest = interest as beneficiary of trust

• Interest as beneficiary = beneficiary’s entitlement to trust property as a proportion of total trust property

• Each default beneficiary of discretionary trust is deemed to have trust interest equal to percentage of trust income or property they would receive in default of trustee appointment

Key concepts – Residential property/land

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VictoriaResidential property

New South WalesResidential land

QueenslandAFAD residential land

• Land capable of lawfully being used solely or primarily for residential purposes

• Land with a building intended for refurbishment or extension to lawfully be used solely or primarily for residential purposes

• Land intended for construction of building to be lawfully used solely or primarily for residential purposes

• Does not include land capable of lawfully being used solely or primarily for “commercial residential premises”, retirement village, residential care facility or supported residential service

• Land on which there is one or more dwellings or a building under construction which, when completed, will constitute one or more dwellings

• Vacant land that is zoned or otherwise designated for use for residential purposes or principally for residential purposes

• Strata lot if lawfully occupied or suitable for lawful occupation as separate dwelling

• Certain utility lots

• Certain land use entitlements

• Does not include commercial residential premises (but does include retirement villages and aged care facilities)

The land must be solely or primarily used for residential purposes, including:

• Land on which there is or will be constructed a building designed or approved by local government for human habitation by single family unit

• Land on which there is a building that will be refurbished, renovated or extended to become a building referred to above

• Land being developed or intended for development into a building as per above

Does not include hotels or motels

May include retirement villages, student accommodation and aged care facilities

Treasurer’s exemption (Victoria)

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• A foreign purchaser can apply for an exemption from the additional duty

• The Treasurer can determine that the person does not have a controlling interest in a corporation or a substantial interest in a trust estate

• The Treasurer has issued Guidelines setting out relevant factors the SRO will take into account

• The main factor is whether the foreign purchaser is Australian‐ based and their commercial activities add to the supply of housing stock in Victoria, either through new development or re‐development that is primarily residential

Applications for Treasurer’s exemption cont’d

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• Other factors the SRO will take into account in determining exemption applications ‐

The residence of the foreign purchaser

Nature and degree of foreign ownership

Independence of management ‐ practical influence to determine decisions of the entity

Impact on the economy and community

Impact on competitive position

Adhering to FIRB requirements

Case study 1 ‐ Off‐the‐plan apartment purchase

• Acquisition of apartment off‐the‐plan for $650,000• Victorian off‐the‐plan apartment concession not available in

respect of duty surcharge• Duty surcharge payable on full purchase price

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Duty payable Victoria New South Wales

Queensland

Australianpurchaser

$4,820 $24,740 $22,275

Foreign purchaser

$50,320 $50,740 $41,775

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Note: Duty calculation in Victoria based on an off‐the‐plan dutiable value of $162,500, being the best outcome under the ‘Fixed Percentage’ method

Case study 2 ‐ Foreign interests in corporations

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Shareholder 1Australian Trust

Shareholder 2Foreign Trust

Australian incorporated company ‐ Purchaser

Residential property

50%50%


No controlling interest held by foreign person

Not a foreign corporation

No surcharge payable

Foreign person has substantial interest

Foreign person (corporation)

Surcharge payable on full value

Foreign person has controlling interest

Foreign corporation


Case study 3 ‐ Foreign interests in unit trusts

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Unitholder 2Foreign Trust

Unitholder 3Foreign Trust

Unit Trust


30%40%


No substantial interest held by aforeign person

Not a foreign trust


Aggregate substantial interest held by foreign persons

Foreign person (trust)


Interest of at least 50% held by one or more foreign persons

Foreign trust


Unitholder 1Australian Trust

30%

Case study 4 ‐ Foreign interests in discretionary trusts

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Specified beneficiariesAustralian citizens

Potential beneficiaryItalian citizen


Discretionary trust


Potential beneficiary has substantial interest

Foreign trust


Potential beneficiary has substantial interest

Foreign person (trust)


Beneficial interests limited to default beneficiaries

Not a foreign trust


Case study 5 ‐ Change of intention

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• October 2016 – foreign purchaser buys a golf course

• Operates golf course for 5 years

• February 2021 – owner decides to re‐develop golf course into townhouses

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Land Tax surcharges ‐ an overview

Land Tax surcharges ‐ how they work

• Payable where land is (wholly or partly) owned by foreign person or entity at relevant assessing date

• Payable by land owner or deemed land owner• Payable in addition to standard rate of land tax

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Case study 6 – Company Landholder

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Shareholder 1Australian citizen

Shareholder 2Foreign person

Australian incorporated company

Land

50%50%

Victoria New South Wales

If neither Shareholder has control, company is not an absentee owner


Land owner is foreign person because Shareholder 2 has substantial interest (at least 20%)

Surcharge payable on full value of land

Case study 7 – Unit Trust Landholder

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Unitholder 1Australian citizen

Unitholder 2Foreign person

Land

Unit Trust

50% 50%


Unit trust is an absentee owner because at least one beneficiary is an absentee beneficiary

Surcharge payable to extent of foreign ownership

Surcharge payable on 50% of value of land

If unit trust is a fixed trust, Unitholders are deemed to be owners for land tax purposes

Surcharge payable to extent of foreign ownership


Case study 8 – Discretionary Trust Landholder

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Specified beneficiariesAustralian citizens

Potential beneficiaryForeign person

Land

Discretionary Trust


Not Absentee Trust as specified beneficiaries are all Australian citizens


Foreign trust as potential beneficiary is foreign person

Surcharge payable on full value of land


Nominee relationship = fixed trust

Absentee trust because at least one beneficiary is an absentee beneficiary


Nominee relationship = fixed trust

Foreign trust because Joint Venturer 2 has at least 20% interest


Case study 9 ‐ Nominee Landholder

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Joint Venturer 1Australian trust

Joint Venturer 2Foreign trust

Australian incorporated

company (acting as nominee)

Land

50%JV Interest

50%JV Interest

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Queensland

Start date 1 July 2015 21 June 2016 1 October 2016

Rate 7% 4% 3%

Residential use Solely or primarily To the extent Solely or primarily

Commercial residentialpremises?

No Some? Some?

Change of intention? Yes No No

Change of residency status? No No Yes

Controlling interest More than 50% At least 20% At least 50%

Beneficiaries of discretionary trusts

Any potential beneficiary

Any potential beneficiary

Defaultbeneficiaries


Yes No Yes

Duty surcharges – Key differences between States

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Start date 2016 land tax year 2017 land tax year 2010

Rate 1.5% (from 1 July 16) 0.75% Same rate as for companies and trusts

Property All land Residential land All land

Exemptionsapply?

Yes Not PPR exemption Not PPR exemption or PPL exemption

Tax‐freethresholds

$250,000 (non‐trust)$25,000 (trust)

Nil (surcharge rate)$482,000 (general rate)

$350,000


Yes No No

Land Tax surcharges ‐ Key differences between States

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Questions & Answers

Craig WhatmanPartner, Transaction TaxesPitcher Partners Advisors Proprietary LimitedLevel 19, 15 William StreetMELBOURNE VIC 3000Phone: (03) 8610 5617Email: [email protected]

Contact

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William ZhangSenior Manager, Transaction TaxesPitcher Partners Advisors Proprietary LimitedLevel 19, 15 William StreetMELBOURNE VIC 3000Phone: (03) 8612 9252Email: [email protected] Zhang

Craig Whatman

Thank youFor your attention

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Thank you!

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