Property News Alert: Announced Upcoming Foreign Investor Surcharges in NSW
On Tuesday 14 June 2016, the New South Wales Treasurer and Minister for Industrial Relations, Gladys Berejiklian announced that included in the 21 June 2016, New South Wales State Budget, there will be a foreign investor surcharge on stamp duty and land tax for residential real estate in New South Wales.
It is expected that there will be a 4% stamp duty surcharge on the purchase of residential real estate by foreign purchasers which will commence on and from Budget day. In other words, contracts entered into on or after Budget day will be hit by this new increase in the amount of stamp duty for the foreign purchasers. This assumes a maximum rate on Premium Duty for residential real estate over $3,000,000 will now be 11% for foreign purchasers.
Foreign investors will no longer be entitled to the 12 month deferral for the payment of stamp duty for “off the plan” purchases of residential property. Accordingly, foreign investors will be liable to pay for stamp duty within 3 months of the date of exchange of contracts. The delayed payment for stamp duty will still be available to non-foreign investors.
On and from the 2017 land tax year, there will also be changes to land tax in relation to foreign persons who own residential real estate in New South Wales. In addition to current land tax rates ($100 plus 1.6% rate for a land value threshold of $482,000 and a premium rate of $39,540 for the first $2,947,000 then 2% over this amount), there will be a 0.75% land tax surcharge on residential real estate owned by foreign persons which will commence from the 2017 land tax year.
Foreign persons will not be provided with a tax free threshold for the land tax surcharge. This means that foreign persons who have bought apartments in New South Wales may begin to pay land tax in 2017. In 2016 the tax free threshold is worth $7,712 per annum.
At this stage the Minister has not provided more information on the new surcharges and so we are unsure as to what is the definition of foreign persons, foreign investors, foreign purchasers and residential real estate. Those expressions were used in the short Media Release.
We do not know what will happen to contracts that are entered into on and from 21 June 2016 pursuant to an option agreement entered into before that date. It is anticipated that further information on these new foreign investor surcharges will become transparent in the 21 June Budget, with subsequent guidance to be provided by the Office of State Revenue. It is also possible that these surcharge amounts may be subject to further increases in the future if the New South Wales Government follows similar approaches taken by the Victorian and the Queensland Governments.
Should you have any comments or questions in relation to these announced surcharges, please contact our New South Wales Property Partners' Gary Newton, Martyn Tier, Christopher Connolly and Penny Evans.