Recently, the NSW government has announced that the surcharge purchaser duty and land tax surcharge will be raised again to foreign person investing in residential real estate from 1 July 2017. The Surcharge Purchaser Duty will be doubled from 4% to 8% and the Land Tax Surcharge will be increased from 0.75% to 2%. NSW government also stated that the raised revenue will be used to help the first home buyer in Australia.

Firstly, let’s take a look at the difference of the stamp duty, surcharge purchaser duty, land tax and land tax surcharge prior and after the change.

* the stamp duty is about 5% when the transaction price is under 3million. However, when the transaction price is over 3 million, the premium duty rate will be 7% for the over portion. The overall stamp duty and surcharge purchaser duty will be as high as 15% for foreign person. Likewise, when the land value is over 3.357 million dollars, the rate will be 2% for the over portion. At this instance, the land tax and land tax surcharge rate will be 4% for foreign person.

The above shows the difference prior and after the change.  Now let’s see what’s the difference between the local ordinary resident and foreign person in terms of the stamp duty and land tax payment after the change.

Assume the residential real estate is 2 million dollars, the land value is 1 million dollars and not qualify for the land tax premium threshold.

As you can see, the stamp duty, surcharge purchaser duty, land tax and land tax surcharge payment will be almost tripled paid by foreign person compared to the local ordinary resident. The difference will be further increased along the future years’ land tax and land tax surcharge.

Here, we have to address that Australia permanent resident, New Zealand citizen, Australia setup companies, most family trust, etc can be treated as foreign person for the surcharge purpose. In terms of the definition of foreign person, please refer to our earlier article Land Tax Surcharge.

Pitt Martin is specialised in investment property related tax issues. If you are not sure about whether you are a foreign resident and whether your property is a residential real estate, please speak to one of our advisers.

Pitt Martin Accountants & Tax Advisers is located at Martin Place in Sydney CBD. We can be reached on +61 2 92213345 or connect@pittmartingroup.com.au.

Disclaimer: This article is not providing a formal advice and may not suit to all scenarios. Please make an appointment with us to discuss.

Robert Liu CPA RTA MPA

Experienced Tax Accountant and Business Advisor with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, Registered ASIC Agent, NSW Law Society External Examiner, Trust Account Auditor and Diploma of Finanical Planning. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.

The Australian government has just announced 2017 Federal Budget tonight. At Pitt Martin, we closely keep update our knowledge with government tax legislation and economy changes. Here is some key points we think can be relevant to the tax payers and business owners.

Housing

• Assisting first home buyers to build a deposit inside superannuation. Voluntary contributions of up to $15,000 per year and $30,000 in total will attract concessional tax treatment under the First Home Super Saver Scheme. This voluntary contribution can be salary sacrifice. The concessional tax rate will be 15% rather than personal marginal rate which is normally over 30%. The scheme commences on 1 July 2017, and contributions and deemed earnings, net of tax, can be withdrawn from 1 July 2018;

• Allowing older Australians to contribute downsizing proceeds into superannuation. From 1 July 2018, individuals aged 65 and over will be able to make a non-concessional contribution of up to $300,000 in proceeds from the sale of a principal residence, held for at least 10 years, into their superannuation. These new contributions will be in addition to any other voluntary contributions that people are able to make under the existing contribution rules and concessional and non-concessional caps. That means potentially such an individual can make overall $625,000 contribution into their super fund in one year from 1 July 2018 by current law;

• Capital gains tax (CGT) will be increased to 60% for investment in affordable housing. Allowing Managed Investment Trusts to be used to develop and own affordable housing, providing investors in affordable housing with greater income certainty by enabling direct deduction of welfare payments from tenants;

• Strengthening the capital gains tax (CGT) rules to reduce the risk that foreign investors avoid paying CGT in Australia, including by no longer allowing foreign or temporary tax residents to claim the main residence CGT exemption, and by expanding the scope of the CGT withholding system for foreign residents;

• Encouraging foreign owners of residential real estate to rent their properties out by applying a ‘ghost tax’ of at least $5,000 (reflecting the original application fee) to foreign owners who leave their properties unoccupied or not available for rent for 6 months or more each year.

• Disallow deductions for travel expenses related to owning a residential investment property. Better target plant and equipment depreciation deductions to those expenses actually incurred by investors.

Business

• More tax breaks and red tape reduction are on the cards this year, with the $20,000 instant asset tax write-off introduced in the 2016 budget being extended for another year until 2018, and opened up to businesses with an annual turnover of up to $10 million which is used to only up to $2 million.

• From March next year, government introduce a levy on foreign workers on certain skilled visas will go towards a new Skilled Australians Fund.

Small business employer will have to pay $1200 per year for a foreign worker, along with a one-off $3000 payment. Larger businesses employer would pay $1800 a year per worker, along with a one-off payment of $5000.

• The Government is stamping out hybrid tax abuse by multinational banks and insurance companies to prevent the exploitation of tax differences between countries. The Government is also toughening the Multinational Anti-Avoidance Law by extending it to corporate structures involving foreign partnerships and foreign trusts.

• The Government is extending the taxable payments reporting system to contractors in the courier and cleaning industries and also banning technology that allows businesses to falsify sales records to avoid paying tax.

Medicare Levy

• The Government will increase the Medicare levy from 2 per cent to 2.5 per cent of taxable income from July 1, 2019 to fund the National Disability Insurance Scheme. You’ll only be exempt if your income is below the threshold of $21,655 for singles, $36,541 for families and $34,244 for pensioners. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.

If you want to find out more details about how this budget affects you, please feel free to contact us.

Pitt Martin Accountants & Tax Advisers is located at Martin Place in Sydney CBD. We can be reached on +61 2 92213345 or connect@pittmartingroup.com.au.

Disclaimer: This article is not providing a formal advice and may not suit to all scenarios. Please make an appointment with us to discuss.

Robert Liu CPA RTA MPA

Experienced Tax Accountant and Business Advisor with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, Registered ASIC Agent, NSW Law Society External Examiner, Trust Account Auditor and Diploma of Finanical Planning. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.

From 1^st January 2017, if you or your family and associates are a foreign person, your NSW residential land might be subject to 0.75% land tax surcharge charged by Office of State Revenue. For example, if your land value is $1 million, the surcharge will be $7,500. This is on top of the land tax if applicable which is charged $100 plus 1.6% over the threshold $549,000 and up to the premium threshold $ 3,357,000 or $45,028 plus 2% over the premium threshold. Unlike land tax, land tax surcharge is applicable even the land related dwelling is used for main residence.

A foreign person could be an individual, company, trust , foreign government, foreign government investor and partners in limited partnerships. For individual, if you are not an Australian citizen and stayed in Australia for the year less than 200 days or your visa subject to any limitation to stay in Australia, your land could be caught up with land tax surcharge. Be careful here, even you are a permanent residence in Australia and you spend less than 200 days in Australia, your property might still be subject to land tax surcharge.

If a company own the residential land and you as a foreign person together with any one or more associates hold at least 20% interests in the company or you as foreign persons together with any one or more associates hold an aggregate of at least 40% interests in the company, the company will be treated as foreign person.

If a trust own the residential land, the surcharge will be different depends on whether it is fixed trust or special trust. For fixed trust, land tax surcharge will be liable to the beneficiary who are foreign person at their proportion of the land value. For special trust including Family Trust, if any of one or more potential beneficiaries are foreign persons, the trustee is liable to the land tax surcharge on the whole value of the land held by the trust. This is mostly the case for the Family Trust whose beneficiary has foreign family member or relatives since they are the default beneficiaries in most Family Trust. To avoid the land tax surcharge because of this, you can contact Pitt Martin Accountants & Tax Advisers to amend your trust deed and you will have to make this amendment before 31 Dec 2016.

Pitt Martin Accountants & Tax Advisers is located at Sydney CBD. We can be reached on +61 2 92213345 or connect@pittmartingroup.com.au.

Disclaimer: This article is not providing a formal advice and may not suit to all scenarios. Please make an appointment with us to discuss.

Robert Liu CPA RTA MPA

Experienced Tax Accountant and Business Advisor with a demonstrated history of working in the accounting industry. Skilled in Tax, Accounting, Business Advisory and SMSF. Strong entrepreneurship professional with qualification Master of Professional Accounting, CPA Public Practice, Registered Tax Agent, Registered ASIC Agent, NSW Law Society External Examiner, Trust Account Auditor and Diploma of Finanical Planning. Specialised in SME, tax planning and international tax, he helped client save ample money and create wealth.