Lawcovernotes August 2017

‘Ghost house tax’ The government also announced that foreign investors will face a ‘ghost house tax’ on properties left unoccupied. The tax will be part of the conditions imposed by the Foreign Investment Review Board when overseas buyers are approved for Australian property purchases. NSW Budget Increased surcharges for foreigners Stamp duty surcharge A stamp duty surcharge of 4% for a “foreign person” who purchases NSW real estate was announced in the 2016 NSW State Budget. It applies where a purchaser has lived in Australia for less than 200 days in the last 12 months. The recent state budget increased the surcharge to 8%, applicable from 1 July 2017. The definition of a “foreign person” is on the Office of State Revenue website – osr.nsw.gov. au/taxes/spd. Irrespective of where they live, Australian citizens are not foreign residents under this regime. From 20 June 2017, permanent residents will be exempt from the stamp duty surcharge on their principal place of residence if they occupy the home continuously for 200 days within 12 months of purchase. This includes New Zealand citizens holding a Special Category visa (subclass 444). The exemption will be also granted if the person declares that they will complete the 200-day residency requirement. Land tax surcharge The annual land tax surcharge for foreign owners will rise from 0.75 to 2%. This means that adjustments on settlement will depend on the vendor’s residency. The wording of the revised 2016/17 version of the standard contract for the sale of land reflects this change. Solicitors should use the new contract to avoid claims arising out of incorrect adjustments. Practical tips By incorporating the following practical tips into everyday legal practice solicitors can help manage risks and protect both clients and their legal practice. ^ ^ The CGT withholding regime may impact a vendor’s ability to complete a subsequent purchase due to occur shortly after a sale. Ensure therefore that your client understands the full purchase price will not be available on settlement unless a clearance certificate has been served on the purchaser before completion. Where remittance of the withholding amount will prevent the vendor discharging a mortgage, consider seeking a variation notice from the ATO. ^ ^ The increased stamp duty surcharge could impact some purchasers’ ability to complete, so clarification of status is important when providing advice. ^ ^ There are different tests for “foreign” residents and persons under the NSW and Australian tax regimes. Determining whether a client is a “foreign person” is not always straightforward. Clarify which provisions will apply to your clients before giving advice. ^ ^ Specialist tax advice may be useful to some clients. Consider recommending it in appropriate cases. ^ ^ The updated version of the Law Society of NSW 2016/17 standard contract incorporates revised wording on the CGT withholding tax regime and land tax adjustments. Use this version of the contract to assist in avoiding errors in these areas. ^ ^ Documentation is important. Record all your advice and instructions by file note, email or letter at the time or shortly after. Simone Herbert-Lowe Senior Claims Solicitor 15.