NSW imposes new property surcharge on foreign investors
According to NSW Treasurer Gladys Berejiklian, the upcoming NSW budget will include new taxes for foreign property investors.
Currently, more than 20 per cent of foreign investors purchase residential property in Australia and foreign investors play an important role in the sale of new apartments and getting developments underway.
However, NSW isn’t the only state looking at foreign investment as a means to increase government coffers. In April, Victoria increased the surcharge for foreign buyers purchasing residential real estate from 3% to 7% in its April budget. This increased surcharge will come into effect from 1 July. As well as Victoria increasing its surcharge, the state has also trebled its land tax surcharge on “absentee landholders” from 0.5% to 1.5%.
The Labor government in Queensland has also announced last week that it will also charge foreign investors a 3% transfer duty surcharge. According to Queensland Treasurer Curtis Pitt, this new surcharge will generate around $25 million for the state annually and will add approximately $14,000 to the price of the average Queensland home, currently sitting at $475,000.
So what is in store for NSW? NSW Treasurer Gladys Berejiklian will add a 4% stamp duty surcharge on residential property bought by foreign investors as well as a 0.75% land tax surcharge for foreign owners from the 2017 land tax year.
It is anticipated that these extra surcharges will generate $262 million over the next financial year and over $1 billion over four years.
Berejiklian stated, “The Victorian experience has demonstrated that the measures have not had an adverse impact on the property market.”
“These new measures will ensure NSW’s property market continues to be an attractive destination for international investors while making sure that we are able to fund vital services into the future.”
Berejiklian firmly believes that these new charges will not deter foreign demand for property within NSW, commenting that "It's been proven successful in Victoria, we also know that Queensland is moving in this direction, and we also know that most foreign investors are likely to absorb this cost and proceed with their transaction anyway”.
These new surcharges will also mean that foreign investors will no longer be entitled to the 12-month deferral for the payment of stamp duty for off the plan residential property purchases. It also means that foreign investors will not get the tax-free threshold for the land tax surcharge.
Unlike Victoria, these surcharges in NSW will only apply to residential property.
However, not everyone agrees that this is the right move. Shadow treasurer Ryan Park said the move was a tax grab, aimed at popping up the budget in the face of failing stamp duty revenue.
iBuyNew CEO Mark Mendel thinks that foreign investors in NSW and Australia should be paying some tax surcharges, but not as excessive as these. The funds generated from this could then be used to help contribute to the local economy and to communities in the areas where tax is being collected, but slugging foreign investors with excessive new surcharges and tax increases could prove counter-productive for the domestic economy.
Victoria has already introduced a 3% surcharge, and foreign demand did not dampen then. With Victoria now introducing a 7% surcharge from 1 July, foreign investors might soon change their minds from investing here.
Published on 16th of June 2016 by Marty Stanowich