Are you an expat planning a sea change to tranquil New South Wales? Before signing on the dotted line for your new property, ensure you are aware of the new stamp duty rules set out in the 2017-2018 State Budget. These recent stamp duty changes are specifically aimed at foreign purchasers.
What exactly is a foreign purchaser?
To determine whether the New South Wales government stamp duty changes will affect you, you must determine whether you fall under the accepted definition of a “foreign purchaser”. According to Australian law, you are considered a foreign purchaser if you are: a foreign natural person, part of a foreign corporation or a trustee in a foreign trust.
What is a foreign natural person?
You are classed as a foreign natural person, provided you are not:
- A citizen or permanent Australian resident, or
- A citizen of New Zealand who has a Special Category Visa (sub class 444)
What is a foreign corporation?
In regard to Australian tax law, a foreign corporation can include:
- Corporations which are incorporated outside of Australia, or
- A corporation incorporated within Australia provided that a foreign natural person, foreign trustee or foreign corporation has a controlling interest in said corporation.
What is a foreign trust?
This is a structure in which the legal title to a property is transferred from the owner (i.e. grantor) to another party (i.e. trustee), who will manage the property on behalf of a third party (i.e. beneficiary). Under Australian law, a foreign trust must be arranged in a foreign country and be subject to Australia’s taxation laws.
Within this trust, a foreign natural person, corporation or trustee must have a significant interest in the estate of that trust.
NSW stamp duty rules prior to the 2017-2018 Budget
Along with being a very desirable living destination, New South Wales has always been an extremely expensive place to purchase property – especially for foreign purchasers.
Prior to the 2017-2018 State Budget, a four percent surcharge was imposed on residential land purchases by natural foreign persons, corporations or trustees.
As outlined in the 2016-2017 Budget, this surcharge applies to direct land purchases (i.e. a land transfer) and indirect land purchases (i.e. land purchased due to the interests in landholder corporations and unit trusts).
Stamp duty changes introduced in the 2017-2018 State Budget
A key feature of the New South Wales State Budget is the significant stamp duty increase (from four percent to eight percent) for foreign persons who plan to buy a residential property in New South Wales.
Effectively doubling the stamp duty fees on residential properties for foreign buyers may seem extreme. However, the reasoning behind the change is quite sound. The key reason for this stamp duty increase is to make housing more affordable for Australian residents.
What are the implications for foreign purchasers?
Essentially, this budgetary measure stipulates that for property purchase transactions (which are entered into on or after July 1st, 2017) on which stamp duty is charged, the surcharge rate increases from four percent to eight percent.
Unfortunately, the existing four percent stamp duty rate no longer applies. This previous stamp duty rate only applies to residential property purchases entered into prior to July 1st, 2017 and transactions resulting from an option for the sale or purchase of residential property, provided that option was granted before July 1st, 2017.
Who will these stamp duty changes impact?
Essentially, the increased stamp duty surcharge will impact foreign home buyers located in, and the developers of, residential land in New South Wales. In this case, residential land refers to either the direct purchase of land or the purchase of property due to the interests of corporations or trusts which hold property located in New South Wales.
The impact of foreign purchasers on the New South Wales housing market
This issue is a hotly contested one. According to government data, in the September quarter of 2017, foreign buyers accounted for around 11 percent of property purchases in New South Wales.
Despite this startling statistic, only two percent of New South Wales property buyers have paid the aforementioned stamp duty surcharge.
The reason behind this is that the surcharge does not impact foreign citizens who are permanent Australian residents.
In order to qualify for this exemption, permanent residents must have lived in Australia for at least 200 days of the previous year.
Some have also argued that foreign purchasers buy the equivalent of 25 percent of all new housing constructed in New South Wales.
In an attempt to curb how much of the property market could be accessed by foreign purchasers, the Budget introduced a requirement that foreign buyers could only purchase a maximum of 50 percent of any apartment complex.
This restriction on purchasing is designed to improve housing affordability for Australians.
In what circumstances does increased stamp duty apply?
You are required to pay the eight percent stamp duty surcharge if you are:
- A foreign citizen or temporary resident. This includes 457 visa holders; however, it excludes 444 visa holders.
- You are buying a residential property in New South Wales. The surcharge does not apply to the purchase of commercial property.
- You are purchasing a residential property with a partner who does not have Australian citizenship, PR or a special New Zealand visa. In this case, you are only required to pay stamp duty on your portion of the purchase.
- You signed a Contract of Sale after July 21st, 2016.
In what circumstances does it not apply?
You are not required to pay the stamp duty surcharge if you are:
- An Australian citizen, a New Zealand citizen with a special category 444 visa, and have had your visa for a minimum of 200 days, or you are a permanent Australian resident and have had your PR at least 200 days.
- You have been in Australia for under 200 days after getting your PR visa or 444 visa, but you are in Australia at the time of the contract exchange and settlement. You must also declare that you will occupy the property for a consecutive period of 200 days (minimum) inside the first year of purchase.
- Buying the property in the name of your partner who is either an Australian citizen, a permanent resident or have a 444 visa.
- Living in Australia with a partner visa (subclass 309 or 820) and you have been in Australia for at least 200 consecutive days.
- A first home buyer who is either a permanent resident or a 444 visa holder. You will qualify for the New South Wales stamp duty waiver provided that you stay in Australia for at least 200 consecutive days once the contract exchange has taken place.
How will this increase impact the stamp duty paid by foreign purchasers?
This sizeable stamp duty increase will significantly increase property prices for foreign purchasers.
In fact, the eight percent stamp duty charge could potentially increase to a maximum rate of 13.5 percent for foreign purchasers.
In addition, a premium property rate of seven percent could also apply to the property purchase. To provide a practical demonstration, the stamp duty payable on a residential property valued at $500,000 may equal $690,490.
This total comprises stamp duty at the general rate at $150,490, stamp duty at the premium property rate of $140,000, and stamp duty at the increased foreign purchaser surcharge rate at $400,000.
According to the New South Wales Treasurer, this stamp duty increase for foreign purchasers is expected to raise at least $111 million during the 2017-2018 period.
Other changes for foreign purchasers in the 2017-2018 Budget
Along with the substantial stamp duty increase, the New South Wales 2017-2018 Budget introduced a raft of sweeping changes which will affect foreign purchasers. One of the most significant changes is alterations to off the plan property purchases.
Let’s go through this change in greater detail.
Off the plan purchases
A significant announcement which came from the 2017-2018 New South Wales State Budget means changes to off the plan purchases. Specifically, the Budget outlines that a liability for stamp duty is deferred (for a maximum of 12 months) on an agreement for the sale of an off the plan property.
By definition, an off the plan property consists of land on which a foreign purchaser will erect a residence. This can only occur, however, if the Chief Commissioner is satisfied that the foreign purchaser will use and occupy the property as their principal place of residence.
This must begin no later than 12 months after the property sale is completed, for at least six months (this is also referred to as “the residence requirement”).
However, if the foreign purchaser does not meet the “residence requirement”, they are liable to pay interest and a penalty tax. These are backdated to the date of the agreement.
Would you like more information on how the new stamp duty surcharge may affect you? Simply contact the experienced team at Expat Tax Services.
Specialising in all matters relating to Australian taxes and Aussie expats, we can help you navigate the stamp duty changes with ease.
Latest posts by Shane Macfarlane (see all)
- Death of the Main Residence Exemption for Australian expats - 05/12/2019
- Main residence CGT exemption abolished for Aussie expats - 22/11/2019
- Determining Your Tax Residency - 24/10/2019