Foreign investors face a number of legal and regulatory challenges when acquiring land in Australia.
In addition to start-up issues relating to the raising of funds, and structure of investment vehicles, the practical implication of varying protocols, taxes and ownership restrictions imposed at State/ Territory and Commonwealth levels requires careful consideration as a part of the decision to purchase land in Australia.
On this point, a number of recent and impending changes have the potential to alter the playing field even further and provide additional challenges to foreign investors. A summary of some of these changes is set out below.
1. Tax
Stamp Duty
Each State/Territory administers its own stamp duty system, with varying rates, exemptions, concessions and timing for payment.
In Queensland, the amount of stamp duty payable will generally be calculated by reference to the higher of: the market value of the property; and the price paid for the land, in both cases including any applicable GST.
From October 1, 2016, any foreign person who purchases residential land (including vacant residential land) will be liable to pay additional stamp duty to the Office of State Revenue. In Queensland, a three per cent duty surcharge applies (four per cent in New South Wales and seven per cent in Victoria).
Importantly, a reassessment mechanism applies if a purchaser (corporation or trustee) becomes a foreign person within three years after the original duty liability date. For example, if an Australian owned company is acquired by a foreign company.
In these circumstances, the amount of duty must be re-assessed. There is a statutory right of recovery for vendors if additional duty is not paid, however, this will be of little assistance if the purchasing entity has become insolvent.
Foreign purchasers that are considering buying residential land in Queensland need to be aware of these changes and seek advice on pending transactions.
2. Foreign Investment Review Board Approval
The right of foreign investors to acquire Australian land is, in many cases, subject to the requirement to obtain the approval of the Australian Treasurer.
The need for this approval depends upon a number of factors, including: The current and intended use of the land; the value of the land; and the nature and ownership structure of the investment vehicle being utilised.
Where approval is required, an application must be made to the Foreign Investment Review Board before the land is acquired.
Failure to obtain approval is an offence under the Foreign Acquisitions and Takeovers Act 1975 (Cth), and can result in the imposition of significant fines and other penalties, including the land being seized by the Commonwealth.
From a practical perspective, foreign investors should obtain professional advice prior to entering into a contract to purchase land in Australia as to whether approval is required and, if necessary, make any contract to purchase land subject to obtaining the approval of the Commonwealth Treasurer.
3. CGT Withholding Tax
A new legislative regime governing capital gains tax payable on the sale of property by foreign residents came into effect from July 1, 2016.
Were a foreign resident disposes of certain ‘taxable Australian property’ the purchaser will be required to withhold 10pc of the purchase price and pay that amount to the Australian Taxation Office (ATO).
The key aspects of the new regime are as follows: It applies to all contracts for the sale of land in Australia worth in excess of $2,000,000.00; and the buyer must withhold 10pc of the purchase price unless the seller provides the buyer with an ATO Clearance Certificate before settlement
The regime will have practical consequences for all vendors and buyers of land in Australia. Importantly, the regime does not apply only to foreign resident vendors. All vendors of property worth in excess of $2,000,000.00 must obtain an ATO Clearance Certificate.
From a practical perspective, vendors should obtain an ATO Clearance Certificate before signing a contract. Vendors should also consider seeking an ATO Clearance Certificate at the start of each financial year.
Further information
McInnes Wilson Lawyers are able to provide advice regarding the obligations imposed under the new legislative regimes and can manage the conveyancing process to ensure that the necessary requirements are met.
Our success is based on the success of our clients. We enjoy a quality relationship and long-term involvement with our clients and are committed to achieving the best results for you.
For further information or advice contact Brendan McGrath (Senior Associate) on (07) 3231 0677 email bmcgrath@mcw.com.au or Jessica Bell (Law Graduate) on (07) 3231 0694 email jbell@mcw.com.au
