State treasurer Gladys Berejiklian has made an announcement to raise an additional 4% stamp duty surcharge from foreign investors for NSW residential property starting from 21 June 2016. An additional 0.75 land tax surcharge will also be raised from 2017.
It is said that the stamp duty surcharge and the land tax surcharge will raise more than $1 billion in revenue over four years. And would help to fund $1.8 billion in business tax cuts announced on Tuesday.
Mrs Berejiklian said she believed overseas investors would not be deterred by the changes. And said that “we also know that most foreign investors are likely to absorb this cost and proceed with their transaction regardless.”
The 2016 State Budget has been announced on 21 June 2016.
Our View
Some might find support from the Victorian stamp duty raise in July 2015 (and again to 7% this year) and argue that the raise did not cause foreign investment to drop. However, it shall be remembered that, NSW has a very different stamp duty scheme from Melbourne, especially in relation to off-the-plan residential property. Whilst Victorian government raised the stamp duty surcharge, the stamp duty concession scheme currently in place is still open to foreign purchasers.
In Victoria, the dutiable value of an off the plan property is calculated by the purchase price less the costs of construction after contract date. Say a property is $400,000.00 and costs $300,000.00 to build, then the dutiable value is only $100,000.00. If the property was purchased early enough, the resulting stamp duty is sometimes only a few thousand dollars. Even a 7% surcharge would not make much a difference to the foreign investors.
However, New South Wales has closed off its stamp duty concession scheme to foreign purchasers since 2014. A median price house of $995,804.00 in Sydney in currently liable for around $41,917.72 stamp duty. A 4% surcharge would mean an extra $40,000.00 on the top of existing stamp duty. The stamp duty payable is in no way comparable to the Victorian scheme, which has left some lea ways for foreign purchases.
As of the date of this article, the 2016 State Budget has been announced. In addition to the 4% surcharge, foreign purchasers will no longer be eligible for the 12 months deferral payment. There will be no land tax threshold to exempt land below specified value.
Thus foreign owners will no longer enjoy any stamp duty concessions and will be subject to a harsher duties and tax regime. The impact of the new stamp duty surcharge and land tax scheme is yet to be seen, but it is our believe that the policy will run the risk of further depressing a already stabilizing property market.
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