Exemptions for foreign Australian-based developers
Exemption from surcharge for new home development by Australian-based developers that are foreign persons
05 March 2018
||Stephen R Brady|
Chief Commissioner of State Revenue
05 March 2018
||replaced by G013v2|
Surcharge purchaser duty applies to acquisitions of residential land by a foreign person from 21 June 2016. Surcharge land tax applies to foreign persons who are owners of residential land from 2017 land tax year.
In 2017, amendments were made to the Duties Act 1997, Land Tax Act 1956 and Land Tax Management Act 1956, providing for surcharge concessions to be provided to Australian-based developers who are foreign persons.
Under sections 104ZJA of the Duties Act 1997 or 5C of the Land Tax Act 1956, there are two forms of concession:
An exemption from surcharge purchaser duty or surcharge land tax if the Chief Commissioner is satisfied that the foreign person will use land, in respect of which the person would otherwise incur liability for surcharge, for the following purposes:
- construction and sale of new homes, or
- subdivision and sale for new home construction.
The Chief Commissioner may apply the exemption to a surcharge liability arising before the exemption was granted, thereby entitling the foreign person to a refund of surcharge payments already made.
A refund of surcharge purchaser duty or surcharge land tax where the foreign person has not been granted an exemption from surcharge, but has used land in respect of which surcharge has been paid for either of the purposes specified under the first concession.
Orders to be approved by the Treasurer and published in the Gazette will provide guidance on the second of these concessions.
This ruling relates to the first concession, and sets out in further detail the matters which the Chief Commissioner will consider in determining whether an exemption from surcharge purchaser duty and surcharge land tax liability should be granted to an Australian-based developer that is a foreign person.
The ruling also provides guidance on the circumstances in which the exemption may be revoked, and on the provision of refunds for surcharges where an exemption is granted after surcharge has been paid.
Granting of an exemption
The Chief Commissioner may, on the application of a person, exempt the person from paying surcharge purchaser duty on a transfer of residential-related property, and/or from the liability to pay surcharge land tax in respect of residential land owned at midnight on 31 December in a year.
In respect of surcharge purchaser duty, the exemption may apply to more than one transfer (including future transfers). In respect of surcharge land tax, the exemption may be granted for more than one land tax year (including future land tax years).
To be granted an exemption from surcharge purchaser duty or surcharge land tax:
The person must be an Australian corporation1 (hereafter referred to as “corporation”), and
The Chief Commissioner must be of the opinion that, were the corporation to pay surcharge purchaser duty or surcharge land tax, it would likely become entitled to a full refund of the relevant surcharge on the basis that either of the following requirements for a refund would be met by the corporation:
Construction and sale of new homes
construction of a new home on the land concerned by the corporation or a related body corporate and sold to a person who is not an associated person of the corporation,
the new home is not used and occupied for any purpose (other than a display home) before the completion of the sale, and
an application for refund is made within 12 months of the home being sold and no later than 10 years after the acquisition of the land concerned by the corporation2.
Subdivision of land for new home construction
subdivision of the land by the corporation or a related body corporate for the purpose of new home construction and then sold by the corporation after the issue of a subdivision certificate, and
an application for refund is made within 12 months of issue of the subdivision certificate and no later than 10 years after the acquisition of the land concerned by the corporation3.
For the purposes of clause 9B of this ruling, the Chief Commissioner may have regard to the following:
the corporation’s past or present involvement in new home construction or the subdivision of land for new home construction
the corporation’s plans for new home construction or subdivision of land for new home construction, as evidenced by, for example, corporate plans, prospectuses, annual reports or other similar publications
approval by the Foreign Investments Review Board to purchase real estate
approval of finance by a financial institution
relevant development approvals
any other matter considered relevant by the Chief Commissioner.
In relation to each of these approvals, the Chief Commissioner may consider processes underway for the corporation to obtain such approvals (eg a proposed strata plan for which a strata certificate has been sought).
In respect of relevant development approvals (10(f)), the Chief Commissioner may consider the following, as appropriate:
a construction certificate issued under section 109C(1)(b) of the Environmental Planning and Assessment Act 1979
a subdivision plan registered under section 195A of the Conveyancing Act 1919
a complying development certificate issued under section 85 of the Environmental Planning and Assessment Act 1979
a subdivision certificate4 issued under Part 4A of the Environmental Planning and Assessment Act 1979
a strata certificate issued by a local council under the Strata Schemes Development Act 2015
any other approvals deemed relevant by the Chief Commissioner.
An exemption may be subject to conditions. Such conditions may, for example, include requirements to report periodically on the progress of a development or such other requirements that may assist the Chief Commissioner to monitor a corporation’s adherence to its obligations under sections 104ZJA of the Duties Act 1997 and 5C of the Land Tax Act 1956, and under the terms of the exemption.
Where an approval is given subject to conditions, the conditions may be varied, at any time, by notice to the corporation. The Chief Commissioner may determine an appropriate transition period before a corporation is required to implement a new or revised condition.
If a corporation’s application for exemption is refused, the corporation is not prevented from submitting a further application. Any further application will be assessed against the legislation and guidelines contained in this Ruling, provided that additional evidence to support the application is provided.
Revocation of an exemption
An exemption remains in force until it is revoked by the Chief Commissioner, by notice to the corporation. Prior to revoking an exemption, the Chief Commissioner may provide the corporation an opportunity to show cause why the exemption should not be revoked.
The Chief Commissioner may revoke an exemption having regard to the exempt corporation’s conduct, including conduct which, had the corporation paid surcharge purchaser duty or surcharge land tax, may have made the corporation ineligible for a full refund. Circumstances in which an exemption may be revoked include the following:
land is purchased to build new homes but is on-sold before a new home is constructed5.
land is on-sold before a subdivision certificate is issued6.
a new home is sold to an associated person.
a home is used and occupied (other than as a display home) before the completion of the sale.
non-compliance with any conditions attached to an exemption.
The Chief Commissioner will consider the nature, extent and duration of the corporation’s conduct in determining whether an exemption should be revoked.
The revocation of an exemption can be backdated to when surcharge liability would (but for the approval) have arisen.
If the revocation of an approval is backdated, surcharge purchaser duty will be assessed or reassessed as if the approval had never applied and as if liability for duty arose when revocation of the approval was notified.
If the revocation of an approval is backdated to extend to a land tax year in respect of which the exemption has already been applied, surcharge land tax is payable and is to be assessed or reassessed as if the approval had never applied in respect of that tax year.
Refunds of surcharge paid prior to an exemption being granted
If an Australian corporation is granted an exemption from surcharge purchaser duty, the Chief Commissioner may apply that exemption to a transfer that took place before the exemption was granted and for which surcharge purchaser duty was paid. Likewise, an exemption from surcharge land tax may be applied to a surcharge land tax liability arising before the exemption was granted.
The Chief Commissioner will need to be satisfied that the backdating of the exemption is warranted, having regard to the corporation’s use or intended use of the residential land.
- ^ For avoidance of doubt, an Australian corporation or related body corporate includes an Australian trustee company. That is, the holding of residential-related property in a trust may also satisfy the exemption if the trustee of the trust is an Australian trustee company.
- ^ The 10 year timeframe applies to land acquired after the introduction of the surcharges (i.e. 21 June 2016). For surcharge land tax (which applies from the 2017 land tax year regardless of when the land was acquired), if completion of the transfer of the residential land to the Australian corporation occurred before 21 June 2016, then the relevant requirements must be met by no later than 21 June 2021.
- ^ See endnote ii
- ^ It is acceptable that the subdivision certificate does not have the same lot number as the lot on which the new home is ultimately constructed.
- ^ See 104ZJA(1)(a)
- ^ See 104ZJA(1)(b)