Affordable Housing stock for investors

Starting with the Victorian Budget on 5 May 2015, the majority of states in Australia have implemented surcharges on foreign investors in the residential property markets. Below are tables that will assist you in understanding the new surcharge for each state that has changed in recent memory.

Most recently, Queensland will implement a land tax surcharge for absentee owners from 1 January 2018. Changes to the rates will apply in NSW from 1 July 2017.

South Australia is set to introduce a surcharge on conveyance duty for foreign owners and temporary residents.

Stamp Duty

Stamp duty surcharge applies for foreign purchasers of residential real estate. This table details the definition of a foreign purchaser for each state, as well as the new rules that apply to the transfer.

Land tax

Absentee owners (and all foreign owners in NSW) will be subject to a surcharge on land tax at the taxing date. This table briefly describes the rules going forward.

In Queensland, an absentee owner will pay a 1.5% surcharge starting on land above $350,000. This surcharge is in addition to a higher land tax already payable for companies, trustees and absentee owners.

For all states and taxes tabled above, a New Zealand citizen who holds a special category visa within s 32 of the Migration Act 1958 (Cth.) is taken to be a permanent visa holder. Any surcharges would generally not apply.

Companies and trusts

The above tables have defined foreign or absentee owners as if they were individuals. The definition of a foreign or absentee owner can also be extended to include companies where foreign persons hold a majority of ownership and/or control.

Also, in New South Wales the definition of a foreign trust has been clarified by the Office of State Revenue. From Revenue Ruling No G 010, a discretionary trust will be liable to the maximum that could be distributed to a foreign person or company. That is, if a foreign person or company is in the class of beneficiaries of a discretionary trust, the surcharge stamp duty and land tax may apply.

The Office of State Revenue is allowing discretionary trusts in this situation the ability to amend their deeds in order to avoid any unintended surcharges for stamp duty and land tax.

Risk mitigation steps

As stamp duty is generally levied during the process of conveyancing, as an accountant it is dutiful to be aware of the legislation as it relates to your clients who are not Australian citizens or permanent visa holders.

For land tax purposes, careful examination of entry and exit days for each year will be necessary going forward for affected clients. Non-resident clients may need to be made aware in these instances, especially when a client is transitioning to permanent residency status. Of particular importance will be the examination of homes in New South Wales jointly held by non-residents, including any spouses that may not be citizens.

For discretionary trust clients in NSW, careful consideration needs to be given relating to the amendment of trust deeds. Removing the trustee’s power to make distributions to foreign persons may have income tax implications. It may also cause re-settlement difficulties in the future if the trust needs to add beneficiaries later on.

In South Australia, an opportunity exists for a foreign or temporary resident to purchase a property prior to commencement of this new duty on 1 January 2018. As no foreign land tax surcharge applies in South Australia, the once off conveyance duty may be avoided with no additional taxes in future years. However, caution is advised as other states have recently introduced land tax surcharges.

Last reviewed: 27 June 2017