FOREIGN PURCHASER AND ABSENTEE OWNER SURCHARGES. Costa Koutsis FTIA Partner, PwC

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1 FOREIGN PURCHASER AND ABSENTEE OWNER SURCHARGES Costa Koutsis FTIA Partner, PwC

2 Overview The Surcharges Key Concepts Challenging Areas What s next?

3 The Surcharges VIC QLD NSW Stamp duty surcharge on residential property 7% from 1 Jul % from 1 Oct % from 21 Jun 2016 Land tax surcharge for the 2017 land tax year 1.5% for any property None 0.75% for residential property

4 Key Concepts Foreign Purchaser Residential Property Transitional Provisions Enforcement How different are the land tax surcharges?

5 Who is a Foreign Purchaser Approach varies between the states NSW relies on FIRB definition with minimal changes Queensland and Victoria have introduced their own definitions but similar to FIRB Cases concerning FATA?

6 Who is a Foreign Purchaser cont. Individuals - Not Australian citizen, permanent resident or NZ resident Foreign corporations regardless of ownership / control For Australian corporations / trusts a foreign person must hold a substantial interest based on ownership, voting power or potential voting power: 50% or more for Qld and Vic 20% or more for NSW Control provision in Victoria Applies regardless of ownership interest Rights, practical influence, practice and patterns of behaviour

7 Who is a Foreign Purchaser cont. Tracing through a chain or series of interests Aggregating multiple foreign owners NSW / Qld all foreigners (even if not associates) and their associates (even if the associate is not foreign) Victoria only associated foreigners Possibility for ex gratia relief in Vic and Qld Foreign Governments 3 year reassessment rule in Qld Looking through apparent purchasers in NSW

8 What is a residential property Landholder vs ordinary transfer duty Land used for a residential purpose Intention is important in Victoria and Queensland is or will be or intends Change of intention also relevant for Victoria Vacant or substantially vacant land in New South Wales Importing concepts from other legislation Commercial residential premises Planning law nuances Single family units and PEXA coding

9 What is a residential property cont. Mixed Use NSW and Qld - apportionment possible Victoria - no apportionment - sole or primary use taints all Commercial residential premises Hotels Motels Serviced Apartments Student Accommodation Retirement Villages Unintended policy outcomes Inner city office conversion Urban growth (affordable housing) flat land subdivision

10 Transitional Provisions NSW agreement entered into prior to 21 June but completed after Victoria no clear transitional for transfer duty rate increase but many for landholder duty / transfer rights Queensland no express transitional but probably not needed given structure of provisions and time between announcement and introduction

11 Enforcement Enforcement of local tax debts in foreign jurisdictions difficult NSW - no additional powers Victoria and Queensland statutory charges specific to the surcharge only Queensland issues relating to joint and several liability of the parties at law

12 How different is the land tax surcharge Absentee owner v foreign purchaser Same definition used in New South Wales Broader definition for land tax in Victoria particularly for trusts What land is caught? Residential and commercial land in Victoria Residential only in New South Wales Other implied surcharges Different rates for foreigners Exemptions with an Australian centric component

13 Challenging Areas Reliance on other legislation Commercial residential premises When is a serviced apartment a serviced apartment What student accommodation is caught Joint investment Investors acquire as tenants in common Investors invest in a trust and trust acquires property Taxation of Australians? Multiple incidences of duty through development lifecycle Should surcharge apply on sales to consumers only Providing greater certainty on ex gratia applications Yearly exemption vs transaction by transaction Timeliness

14 Challenging Areas Need for greater due diligence Victoria and changes of intention What time limit? Intended use vs actual use Queensland 3 year rule Possibility of double duty Statutory charges Victorian land tax surcharge Are wholesale and listed trusts really excluded? Apportionment Land held directly by a trust with mixed investors Land held by a sub trust of a holding trust with mixed investors Ex gratia exemption for companies but not trusts

15 What s next? One state legislates another follows: Land rich changes Introduction of land holder duty No harmonisation between states: Who is a foreign purchaser? What is residential property? What is the rate? Different approaches to implementation New head of duty Simple rate increase Exemptions Administration What s next? Do remaining states follow? Expanding the base?

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17 Costa Koutsis, PwC 2016 Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this presentation and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.