Developer’s Special Edition
- Consequences to developers of recent stamp duty and land tax changes; and
- Consequences to developers flowing from recent changes to foreign investment regulation.
STAMP DUTY AND LAND TAX –
changes may impact on attractiveness of particular locations
Consequences for developers
Following recent changes to stamp duty and land tax in a number of Australian jurisdictions, some of the more important consequences we have identified flowing from such changes are:
- As stamp duty and land tax are State based taxes, such duty and tax can (and generally does) vary from State to State. The variations can be in the rates charged as well as the method of calculation and the circumstances in which they are payable. These differences have been highlighted by the recent changes. See for example the different rates, method of calculation and the circumstances applicable to the foreign purchaser surcharges and land tax or absentee surcharges in New South Wales, Queensland and Victoria and the upcoming foreign purchaser surcharge to be introduced in South Australia from 1 January 2018.For these reasons, it is even more important to obtain advice as to the stamp duty and land tax applicable to any proposed transaction well in advance of committing to the transaction.
- Due to recent changes in the rate of stamp duties and land taxes in the Eastern Seaboard states, particularly New South Wales and Victoria, failure to take them into account is likely to have an adverse impact on the feasibility of a transaction when the purchaser(s) or developer is a foreign person. For example, the surcharge purchaser duty payable in New South Wales on transactions involving the transfer of “residential related property” to foreign persons has been increased from 4% to 8% as of 1 July 2017 resulting in the top rate of duty increasing to 13.5% (or, if the property is purchased for more than $3m, approximately 15%). Residential -related property includes vacant land zoned or otherwise designated for use as residential or principally residential purposes.
- Foreign purchasers of residential real estate along the Eastern Seaboard are now subject to higher (and a broader range of) duties and taxes than was previously the case. See above as well as the imposition in Victoria of a Vacant Residential Property Tax of 1% from 1 January 2018. This will be calculated on the capital improved value of a property used for local council rating purposes. It will apply in 16 inner and middle local areas of Melbourne but will not apply to vacant land. Based on recent commentary, the rate increases may already be affecting investment trends with developers and foreign purchasers now considering other Australian States and Territories where such duties and taxes are either not imposed or imposed at lower rates or in more limited circumstances.
- In some jurisdictions, the involvement of foreign investors in projects will have adverse land tax consequences for Australian developers due to the operation of some of the new land tax and absentee owner surcharges. See for example the meaning of foreign person used in the New South Wales legislation and the meaning of absentee corporation and absentee trust in Victoria.
- The limits placed on the off-the-plan concession provided to purchasers of off-the-plan properties in Victoria will have a potentially significant adverse impact on developers of residential apartments in that State. The concession is no longer available to investors and is only available in limited circumstances and for properties with a relatively low value. These limits did not previously apply.
- The structuring or restructuring of a transaction to account for changes in ownership of the developer and/or land owner may be more difficult in New South Wales due to strengthened anti-avoidance provisions.
- The above matters may be taken into consideration by potential lenders who are already tightening up their requirements in respect of development finance.
Consequences for developers
As mentioned in our previous Alerts, a number of significant changes were made to the foreign investment regulations as from 1 Jul 2017, many of which will impact developers. Some of the more important consequences to developers we have identified are:
- Developers will be able to facilitate sales of both new and near new dwellings to foreign purchasers by applying for an appropriate exemption certificate, although a cost/benefit analysis may prove that it is preferable for individual purchasers to seek their own approvals.
- There is now clear recognition that a property sold off-the-plan will not lose its status as a new dwelling (and therefore will continue to be able to be purchased by foreign persons) if the settlement of the initial sale by the developer does not proceed.
- Purchasers of new or near new dwellings are able to obtain their own exemption certificates in relation to such properties before they have identified the actual property to be purchased. This will enable them to act quickly and execute unconditional contracts provided the property acquired satisfies the conditions of their exemption certificate. Developers may wish to review such certificates to ensure the actual sale is compliant with the certificate conditions.
- There are now clearer guidelines as to the application fees payable by residential developers when acquiring multiple titles for the purposes of the development.
With the ever increasing use of taxes and regulations to affect market behaviour in respect of the property sector, investors need to have an understanding of these issues before embarking on a transaction.
In keeping with our aim to assist investors minimise the stress involved in Australian property transactions, we trust you have found the above information useful. Please feel free to share this email with your business network and to contact us to discuss how we can work with you to improve your investment outcomes.
We trust you have found the above information useful and hope it will assist you in current and future transactions. If that is the case, please feel free to share this email with your business network. I welcome your feedback at firstname.lastname@example.org
The comments made in this Alert do not constitute the provision of any legal, tax or accounting advice by Peter Faludi Consulting or any Director or employee thereof and therefore you should not rely on this Alert in making any decisions relating to present or future transactions in which you are involved. We strongly recommend that you seek legal, tax and/or accounting advice (as relevant) in relation to the same.