A surcharge will apply from the 2017 Land Tax Year in respect of the taxable value of all residential land owned by a foreign person at midnight on 31 December 2016 in any year.
A foreign person means:
- An individual not ordinary resident in Australia; or
- A corporation in which an individual not ordinary resident in Australia, a foreign corporation, or a foreign government holds a substantial interest in; or
- A corporation in which two or more persons, each of whom is an individual, not ordinary resident in Australia, a foreign corporation or a foreign government, hold adequate substantial interest in or;
- The Trustee of a Trust in which an individual not ordinary resident in Australia, a foreign corporation or a foreign government holds a substantial interest in; or
- The Trustee of a Trust in which two or more persons, each of whom is an individual not ordinary resident in Australia, a foreign corporation or a foreign government, holds an adequate substantial interest in; or
- A foreign government; or
- A general partner of a limited partnership where:
- An individual not ordinary resident in Australia, a foreign corporation or a foreign government holds at least 20% in the limited partnership; or
- Two or more persons each of whom is an individual not ordinary resident in Australia, a foreign corporation or a foreign government, holds an adequate interest at least 40% in the limited partnership.
The definition of a foreign person does not include an Australian Citizen, irrespective of where they reside.
What does ordinary resident mean?
An individual is ordinary resident in Australia at a particular time if the individual has actually been in Australia during 200 or more days in a period of 12 months immediately preceding that time, and is not (or was not, immediately before their most recent departure from Australia) subject to any limitation as to time for their continued presence in Australia.
Is a New Zealand Citizen a foreign person?
A New Zealand Citizen is not classified as a foreign person if they hold a special category visa, within the meaning of section 32 of the Migration Act 1958 (Cth) and whose continued presence in Australia is not subject to any limitations as to the time imposed by Law. However, they would still need to be ordinarily resident in Australia.
What does substantial interest mean?
A person holds a substantial interest in an entity or trust if:
- Foreign entity – the person holds an interest at least 20% in that entity;
- For a trust (including a unit trust) – the person, together with any one or more associates, holds a beneficial interest in at least 20% of the income or property of the trust.
What is an aggregate substantial interest?
Two or more persons hold an aggregate substantial interest in the entity or trust if:
- Foreign entity – the persons hold an aggregate interest of at least 40% in the entity;
- For a trust (including a unit trust) – the person/ persons, together with any one or more associates of any of them hold, aggregate, beneficial interests in at least 40% of the income or property of the trust.
How is beneficial land defined?
Residential land means any of the following and does not include any land used for primary production:
- A parcel of land on which there are one or more dwellings, or a parcel of land of which there is a building under construction that, when completed, will constitute one or more dwellings;
- A strata lot, if it is lawfully occupied as a separate dwelling, or suitable for legal occupation as a separate dwelling;
- A utility lot, if its use is restricted to the owner or occupier of a strata lot;
- A land use entitlement, if it entitles a holder of the land use entitlement to occupy a building, or part of a building, as a separate dwelling;
- A parcel of vacant land that is owned or otherwise designated for use for residential or principally for residential purposes.
Does the Land Tax Surcharge only apply to new purchasers?
No, existing land owners will still be liable for the surcharge.
How is the taxable value of residential land calculated?
The taxable value used for Land Tax purposes is the same as for calculating the surcharge. That is, the Land Tax liability will generally be the average of the unapproved land value for the current tax year and the unimproved land values for the previous two tax years. Where a parcel land was only recently created (for example, by subdivision or amalgamation) the average land value will be based only on the values for those tax years when the newly created land item existed.
What is the rate of the surcharge?
The surcharge is 0.75% of the taxable value of all residential land held by the foreign person as at midnight on 31 December each year.
Is there a threshold applicable to the surcharge?
No, there is no threshold. The surcharge is a flat 0.75% of the total taxable land value.
If the total adjusted land value is below the current Land Tax threshold, is it still subject to the surcharge?
Yes, the surcharge still applies on all residential land owned if owned by a foreign person.
How is the surcharge calculated if the land is owned by a foreign person and non-foreign persons?
If more than one owns the land and if any of those persons is not a foreign person, the surcharge is assessed on the portion of the interest held by the foreign person.
Is the surcharge applicable on exempt residential land owned by foreign persons?
Yes, any residential land entitled to a Land Tax exemption will still be liable to the surcharge.
Does the surcharge apply if the building has both residential and commercial purposes?
Yes, the surcharge applies to the portion used for residential purposes.
For example, if both a shop and residential flat are situated on a parcel land, and a portion factor is used to portion the land value.
Are foreign companies liable for the surcharge?
Yes, foreign companies owning residential land will be liable for the surcharge.
Is the trustee of a special trust liable for the surcharge?
In the case of Special Trust, which have one or more potential beneficiaries who are foreign persons, the trustee will be liable for the levy on the whole of the residential land owned by the trust.
How is the surcharge applied to fixed trust?
The beneficiaries will be individually assessed and liable in respect to the value of their proportionate interest. The trustee of a fixed trust is not liable for the trustee that may be liable for the payment of any surcharge not paid by the beneficiaries.
- A foreign person who owns residential land with a land value of $700,000. The Land Tax payable on $700,000 is $3,588. The surcharge payable at 0.75% of $700,000 is $5,250;
- A foreign person owns land with the total value of $2 million. That person owns both commercial and residential land with the residential land having a value of $1.2 million and the remaining value of the commercial land being $800,000. The Land Tax payable is calculated on $2 million, which is $24,388 and the surcharge is calculated on the residential land which is 0.75% of $1.2 million = $9,000.
- “A” and “B” jointly own residential land having a total value of $1 million with each holding 50% interest in the land. “A” is a foreign person and “B” is an Australian Citizen. The Land Tax payable by “A” and “B” is calculated on the $1 million which is $8,388. “A” owns 50% of the $1 million which is $500,000, which is subject to the surcharge which is 0.75% of $500,000 which is $3,750.
- “A” and “B” own residential land which has a value of $400,000 which they hold jointly. “A” also owns residential land with a taxable value of $300,000 which “A” being a foreign person and “B” an Australian Citizen. The Land Tax payable by “A” and “B” is calculated on $400,000 which is nil. “B” owns 50% of $500,000 which is $200,000 with the surcharge of 0.75% on $500,000 is $3,750.
- “A” owns residential land with a total value of $400,000 and “A” is a foreign citizen. The Land Tax payable is nil as their land is under the threshold of $482,000. The surcharge is 0.75% of $400,000 which is $3,000.
For further information, contact Stephen Rockliff of Rockliffs Lawyers.