Government builds on refund and exemption provisions available to Australian-based foreign owned developers

Where are we now?

Foreign persons who acquire NSW residential land are required to pay higher rates of stamp duty (surcharge purchaser duty of 8%) and foreign persons who own NSW residential land are required to pay higher rates of land tax (surcharge land tax of 2%).

The surcharge is payable in addition to the normal rate of stamp duty and land tax and has been in effect since 21 June 2016. Other jurisdictions have also introduced a similar surcharge regime, such as Victoria, Queensland, South Australia and Western Australia.

In line with the NSW Government's housing affordability strategy, the NSW Government this year passed legislation containing favourable measures for Australian-based, foreign owned developers. Although the provisions are not yet in force, they would effectively work by allowing a refund of the surcharge purchaser duty or exemption from surcharge land tax if the developer contributed to the housing supply through the sale of new homes.

After consultation with building industry bodies, the NSW Government has introduced a new bill with additional flexibility which expands the scope of the proposed refund and exemption provisions.

State Revenue Legislation Amendment (Surcharge) Bill 2017

The new bill proposes several important changes:

  • The refund process will be open to developers who construct and sell new homes on an existing title and to developers who subdivide land for the purpose of new home construction and then sell the land after the issue of a subdivision certificate.
  • Developers will now have a 10 year time limit (from the time of acquisition of the property) to apply for a refund. Previously, it was a 5 year period, which was originally designed to discourage excessive delays to construction and land banking.
  • Developers may be able to claim an up-front exemption, instead of applying for a refund post-construction and sale of new homes. To be exempt, the Chief Commissioner must be of the opinion that the developer is likely to become entitled to a full refund. According to the second reading speech, the exemption will be available for "reputable builders and developers".
  • The above changes have also been applied to surcharge land tax. Previously, a developer was able to claim an exemption from, or refund of, surcharge land tax if the corporation sold new homes they had constructed on the residential land concerned. As the Chief Commissioner now needs to be of the opinion that the developer is likely to be entitled to the refund, this adds another screening process to the exemption application.

There are some aspects that are still unclear:

  • What criteria do applicants need to meet and what documentation is required to support an application for an exemption?
  • The developer must be an "Australian corporation", meaning a corporation that is incorporated under the Corporations Act 2001 (Cth). Does this term extend to companies acting in a trustee capacity of a unit trust or general partners of a limited partnership? The legislation is not clear.
  • When these provisions are expected to take effect? This is unknown as the bill is currently facing push back from the Opposition. However, if the bill is passed, the provisions will apply retrospectively.

Good news or bad news?

Mainly good news. It shows that the Government has listened to concerns from the housing industry, particularly regarding planning and construction timeframes reflected in the previous rules, cash flow considerations and competitive disadvantages.

The Chief Commissioner will be developing guidelines setting out the relevant application criteria and we expect the guidelines to also address the capacity issue outlined above. Pending the release of any guidelines, the application of these provisions will remain uncertain and developers will remain at risk of being liable for the surcharge. Accordingly, we expect that such risk is reflected in project cash flow and feasibility studies.

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