NSW Non Resident Transfer Duty Exemption
From 1 July 2017 the NSW foreign investor transfer duty surcharge has increased from 4% to 8% with the surcharge still being payable upfront. Similarly, the NSW foreign investor land tax surcharge of 0.75% has increased to 2% per annum for the 2018 tax year.
However, Australian-based foreign-owned developers may be entitled to a refund or exemption from the surcharges if the following criteria are met under the State Revenue and Other Legislation Amendment (Budget Measures) Act 2017 [NSW] (the Act):
the corporation or a related body corporate of the corporation constructed a new home (as defined in the First Home Owner Gran (New Homes) Act 2000) on the residential land; and
the corporation sold the new home to a person other than an associated person of the corporation; and
the home was not occupied or used as a place of residence or for any other purpose during the period commencing on completion of construction of the new home and ending on completion of its sale.
The Act was assented on 27 June 2017.
Whilst the refund or exemption does help Australian-based foreign-owned residential property developers to compete with Australian-owned developers in certain circumstances, there are certain inadequacies with the Act.
Firstly, the refund or exemption is only limited to corporations that are incorporated under the Corporations Act 2001. This means that the refund or exemption will not be available to other types of entities such as trusts, partnerships or superannuation funds.
Australian-owned corporates will need to consider if the above refund or exemption will apply where a JV structure has been implemented with a foreign-owned partner as the impact of the increased rates will likely have a material effect if no refund or exemption can be obtained.
The refund or exemption is also only limited to circumstances where a new home is constructed on land. Therefore, land sales themselves will not be eligible for the exemption.
Furthermore, there is a time limit of 5 years in which a newly constructed home must be sold to be eligible for the refund or exemption as the drafting of the rules state that the application for the refund or exemption must be made within 12 months after the completion of the sale of the new home and no later than 5 years after the completion of the transfer of the residential-related property / residential land to the Australian corporation.
The refund or exemption will be available proportionately in respect of new homes sold to non-associated persons within 5 years of the initial land acquisition.
The refund or exemption will apply retrospectively from 21 June 2016.
For more information and where to find the Act, please see the below links:
http://www.legislation.nsw.gov.au/~/view/act/2017/33
http://www.osr.nsw.gov.au/info/legislation/budget/201706
http://www.osr.nsw.gov.au/info/legislation/budget/201706/faq