by Katherine Gardner, Senior Content Specialist (LLB (Hons) LLM)
Conveyancers and practitioners need to be ready for the newly introduced Federal and NSW State changes to foreign investor taxes which simultaneously commence on 1 July 2017. The table below presents the key changes to the relevant rates for the purposes of preparing and finalising contract documents and settlement statements for property acquisitions that occur on or after 1 July 2017. At this stage it is unknown whether other states are likely to follow NSW.
Caution for foreign investors
Conveyancers and practitioners acting for foreign investors seeking to purchase residential property in New South Wales need to carefully assess whether the CGT withholding rate applies based upon the reduced $750,000 threshold, on top of the increased state surcharges. Contracts for Sale need to be carefully drafted to ensure that these taxes are correctly calculated and paid to avoid delays at settlement. Transitional provisions may apply for contracts entered into before the commencement dates but are expected to settle after those dates, and these need to be considered on an individual basis.
At this stage it is unknown whether the NSW Law Society is planning to release a new amended standard form to update the current Contract for the Sale and Purchase of Land — 2016 Edition (released, 15 June 2016).
In addition to these tax changes there are also additional charges and restrictions on foreign ownership (imposed by the federal government) as well as benefits for first homebuyers (NSW State Government initiative) which are separately considered here:
- How the Federal budget will affect property law, 10 May 2017
- Changes to foreign investment framework — streamlining fees, 01 June 2017
- NSW: housing affordability package announced — stamp duty exemption for first home buyers, 05 June 2017.
Foreign Investor Surcharges and Taxes — Federal and NSW State overview
|Federal government||CGT withholding rate increases from 10% to 12.5%. Valuation threshold reduced from $2m to $750,000.||1 July 2017||Treasury Laws Amendment (Foreign Resident Capital Gains Withholding Payments) Bill 2017.||Due to the reduction of the property value threshold to $750,000, this tax will apply to most properties (certainly within the Sydney basin).|
|NSW Government||*Surcharge on stamp duty increases from 4% to 8%.||1 July 2017||Improving Housing Affordability Package (announced on 1 June 2017). Legislation to follow.||Contracts dated prior to the commencement of these NSW State reforms (1 July 2017) will continue to be eligible for the same grants, concessions, and conditions for which they would have been eligible had these changes not occurred.|
|*Surcharge on land tax increases from 0.75% to 2%.||1 July 2017||Improving Housing Affordability Package (announced on 1 June 2017). Legislation to follow.||These NSW State surcharge increases are expected to fund the first homebuyer’s concession abolishing stamp duty on existing and new homes up to the value of $650,000. For properties valued at between $650,000 and $800,000, the duty concession will be gradually reduced.|
*Foreign “developers” will be exempt from the increased NSW State surcharges. It is unknown at this stage how the definitions will be drafted to clarify the distinction between “developers” and “investors”.
NB: These provisions apply at the date of this article being published and may be subject to change between now and the commencement date.