Stamp Duty Foreign Purchaser Surcharge

Stamp Duty Foreign Purchaser Surcharge Victoria, Queensland and New South Wales 22 June 2016

Stamp Duty Foreign Purchaser Surcharge Overview of the Victorian, Queensland, and New South Wales Provisions as at 22 June 2016 1. Overview 1.1 Each of Victoria, Queensland, and New South Wales has introduced new foreign investor stamp duty surcharges for transactions involving direct and indirect acquisitions of residential property. 1.2 The key issues highlighted in this report include: (a) Who is a Foreign Purchaser / Person? (i) Such persons being: (A) a foreign natural person / individual; (B) a foreign corporation; and (C) a trustee or a foreign trust (ii) (iii) When does a person have a controlling interest in a corporation, or a substantial interest / trust interest in a trust? Is this a 20%, 50%, or greater than 50%, test? When does the Commissioner have a discretion to exempt the purchaser from the surcharge? (b) (c) What is Residential Property? (i) When will land be solely / primarily used for residential purposes on which there is or will be a building designed for such use? (ii) Is short term accommodation (eg commercial residential premises) residential property? (iii) What happens if the purchaser's use of the land changes, or where the profile of the purchaser changes? What rates apply, are there transitional provisions, and what enforcement powers does the Commissioner have? 1.3 We set out in the following table our high level overview of the key foreign purchaser surcharge stamp duty measures addressing these issues. The table simplifies the provisions and provides high level guidance only. Specific advice should be sought for particular transactions. 1.4 While Victoria and New South Wales have also introduced foreign investor land tax surcharges, these provisions are not addressed in this report. Foreign Purchaser Surcharge Page 2

Purchaser Identity: Who is a Foreign Purchaser? Victoria Queensland New South Wales 1. Foreign Natural Person / Foreign Individual Definition Any person except the below. Any person, except the below. "Foreign person" under Foreign Acquisitions and Takeovers Act 1975 (Cth). Exceptions below. Exceptions: Australian citizen Exempt Exempt Exempt Holder of a permanent visa Exempt Exempt Exempt NZ citizen holding a special category visa (subclass 444) Exempt Exempt Exempt Individual has lawfully been in Australia for 200 or more days within preceding year and not subject to a legal time limitation on being in Australia Not exempt Not exempt Exempt 2. Foreign Corporation Not incorporated in Australia Not relevant Foreign natural person / foreign corporation / trustee of a foreign trust holds an interest in the corporation Commissioner's discretion: the Commissioner can determine a person has a controlling interest in a corporation 2 the Commissioner has a discretion to consider a person not to have a controlling interest 3, if a 'controlling interest' over 50% 1, if a 'controlling interest' of 50% or more 1, if one foreign entity holds an interest of 20% or more, or if two or more foreign entities hold an interest of 40% or more No No 1 Control means control that is direct or indirect, including control that is exercisable as a result or by means of arrangements or practises, whether having legal or equitable force, and whether based on legal or equitable rights. Also includes potential voting power to determine how much potential voting power a person is in a position to control, section 22 of the Foreign Acquisitions and Takeovers Act 1975 (Cth) applies. Interest is calculated on an associate inclusive basis ie the associate does not have to be a foreign purchaser / person. 2 In the Commissioner's opinion, the person has capacity to determine or influence, directly or indirectly the outcome of decisions about the corporation's financial and operating policies. 3 Persons intended to be exempted are those whose commercial activities significantly add to the supply of housing stock in Victoria (either through new developments or through re-development, where such development is primarily residential). Foreign Purchaser Surcharge Page 3

Purchaser Identity: Who is a Foreign Purchaser? Victoria Queensland New South Wales 3. Foreign Trust Foreign natural person / corporation / another person holds a beneficial interest in the trust 4, if an interest of over 50%, if an interest of 50% or more, if one foreign entity holds an interest of 20% or more, or if two or more foreign entities hold an interest of 40% or more Discretionary trusts where a beneficiary is a foreign person (any beneficiary) (taker in default only) 5 Commissioner's discretion: Commissioner can determine a person has more than a 50% beneficial interest in the trust 6 Commissioner has a discretion person taken not to have more than a 50% beneficial interest in the trust 7 No No 4. Foreign Government Foreign government (eg a body politic of a foreign country, or a body politic of part of a foreign country, or a part of such body politics) N/A N/A 4 For Vic purposes, interest in the capital of the trust estate. For NSW purposes, interest in the income or property of the trust. 5 Beneficiaries includes related persons of foreign persons, foreign corporations and foreign trustees. 6 In the Commissioner's opinion, the person has capacity to determine or influence the outcome of decisions about the administration and conduct of the trust. 7 Persons intended to be exempted are those whose commercial activities significantly add to the supply of housing stock in Victoria (either through new developments or through re-development, where such development is primarily residential). Foreign Purchaser Surcharge Page 4

Nature of Property: What is Residential? Victoria Queensland New South Wales 1. Residential Property Land currently used for residential purposes Land capable of being used solely / primarily for residential purposes No, unless being used for residential, Land including a building / part of a building that a person intends to refurbish or extend so the being constructed land is capable of being used solely / primarily for residential purposes for (or as to be capable of) residential Land on which a person intends to construct a building so the land is capable of being used purposes or solely / primarily for residential purposes vacant land zoned residential/principally Land on which a person has undertaken / intends to undertake land development to construct a residential building so the land is capable of being used solely / primarily for residential purposes Land on which a person has undertaken / intends to undertake land development to enable another person to construct a building so the land is capable of being used solely / primarily for residential purposes Dual purpose land (residential and commercial) if primarily residential then is residential property Acquire part of the residential property, or Acquire part interest in the residential property Residential property includes short term accommodation (eg a hotel, motel, serviced apartment, retirement village or student accommodation) 2. Change of Intention Foreign purchaser acquires non-residential property but then forms intention to affix building on land that is designed and constructed solely / primarily for residential purposes (no time limit on intention) 9 Amendment Bill Uncertain No being passed 8 No 3. Change in Profile of Purchaser Reassessment if corporation or trust becomes foreign within 3 years after the liability for duty arose No No 8 Now in doubt Vic Legislative Council proposing to amend legislation to expressly exclude commercial residential premises. 9 In Qld this comes under the general provisions in the Taxation Administration Act 2001 (Qld). Foreign Purchaser Surcharge Page 5

Administration: Rates and Enforcement Victoria Queensland New South Wales 1. Rates Pre 1 July 2015 (no surcharge) Nil Nil Nil 1 July 2015 20 June 2016 3% Nil Nil 21 June 2016 30 June 2016 3% Nil 4% 1 July 2016 30 September 2016 7% Nil 4% 1 October 2016 onwards 10 7% 3% 4% Land otherwise exempt remains exempt Depends Dual purpose land (residential and commercial) if primarily residential then is residential property. Surcharge applied to foreign purchaser's share of dutiable value in whole property? Landholder duty duty surcharge only applies to interest acquired in landholder proportional to landholder's landholdings which comprise residential property Whole property Whole property Apportioned for residential-related property 2. Transitional Issues Entry into contract / option pre surcharge date, settlement (transfer) post surcharge date Entry into contract pre surcharge date, nominate / enter into sub-sale with foreign purchaser who takes the transfer post surcharge date 11 No surcharge Surcharge applies 3. Enforcement Time period in which foreign purchasers who acquire residential land are required to lodge a statement 30 days (or 14 days if change of use of land gives rise to surcharge) 30 days 3 months Party liable for the surcharge transfer duty 12 Transferee/ acquirer All parties Transferee/ acquirer Ability to claim a refund of the surcharge paid because of a change of intended use to residential premises but the residential premises are never constructed No No N/A 10 Where the surcharge applies, the top duty rates are 12.5% (Vic), 8.75% (Qld), 9.5 (NSW, note additional premium property rate of 7% can also apply). 11 Note if the reverse applies (eg contract entered into with foreign purchaser then non-foreign purchaser takes the transfer), refund of surcharge may be available in NSW. 12 In Qld all parties to the transaction are jointly and severally liable to pay the surcharge. Foreign Purchaser Surcharge Page 6