Contributed by Keshni Maharaj, Special Counsel and David Wong, Senior Associate, Clayton Utz
If you are an Australian-based company who is a “foreign person” and develop land for construction of new homes, then you may be eligible for a refund of any surcharge purchaser duty and surcharge land tax.
On 5 March 2018, legislative provisions came into effect which give concessions from surcharge purchaser duty and surcharge land tax in NSW to Australian-based developers who are “foreign persons”. These concessions had been announced in the 2017/18 NSW Budget.
As of 5 March 2018, the rate of surcharge purchaser duty in NSW was 8% and the rate of surcharge land tax was 2%.
Refer to CCH Books’ Top 4 Tax Guides Collection 2018 for more tax guidance and insights.
The new provisions operate to give a refund of any surcharge purchaser duty or surcharge land tax to Australian corporations (including corporations acting as trustees) where:
- a new home has been constructed on the land and sold to a third party who is not an associate of the Australian corporation and without the home having been used or occupied for any purpose (other than as a display home) before completion of that sale, or
- the land is subdivided by the Australian corporation for the purpose of new home construction and sold by the corporation after the issue of a subdivision certificate.
Generally, the application for refund must be made within 12 months after completion of the sale of new home or issue of subdivision certificate but no later than 10 years after the transfer of the land to the Australian corporation. If completion of the transfer to the Australian corporation occurred before 21 June 2016, an application for refund of surcharge land tax must be made before 21 June 2021.
The provisions operate retrospectively so that a refund of surcharge purchaser duty can be available for both transfers that occurred before 5 March 2018 and transfers that occur on or after 5 March 2018. Likewise, a refund of surcharge land tax can be available in respect of the 2017 land tax year and subsequent tax years.
As such, any Australian-based developers who have paid surcharge purchaser duty or surcharge land tax should consider whether they would qualify for a refund.
Exempt person status
As an alternative to paying surcharge purchaser duty and surcharge land tax up front, and claiming a refund at a later point in time, Australian-based developers may be able to apply for an exemption prior to paying that duty.
If the Chief Commissioner is of the opinion that a person is likely to become entitled to a refund of surcharge purchaser duty or surcharge land tax, the Chief Commissioner may approve a person as an exempt person for a particular transfer (in the case of the surcharge purchaser duty) or parcel of land (in the case of surcharge land tax), in which case the foreign person would be exempt from paying the surcharge purchaser duty or surcharge land tax. If the exemption is given, then it will also apply for future transfers of land and future land tax years.
The Chief Commissioner has stated in Revenue Ruling No G 013 that he will have regard to the following in considering whether to grant the exemption:
- the corporation’s past or present involvement in new home construction or the subdivision of land for new home construction
- the corporation’s plans for new home construction or subdivision of land for new home construction, as evidenced by, eg corporate plans, prospectuses, annual reports or other similar publications
- approval by the Foreign Investments Review Board to purchase real estate
- development timetables
- approval of finance by a financial institution
- relevant development approvals, and
- any other matter considered relevant by the Chief Commissioner.
Australian-based developers who would regularly be impacted by surcharge purchaser duty and surcharge land tax would benefit most from applying for the exempt person status. It should be noted that the exemption can be conditional, may be revoked depending on the conduct of the taxpayer, and that revocation may be backdated.