Both the Federal and New South Wales Governments have recently announced a number of changes in their budgets that will significantly affect purchasers and vendors of real estate in New South Wales, particularly those who are not Australian citizens or homebuyers.
Changes to the Foreign Resident Capital Gains Withholding regime (‘FRCGW’)
Introduced as part of the 2016 Federal budget, the FRCGW created an obligation on the part of purchasers of real estate to remit 10% of the purchase price (less any GST if the purchaser is GST-registered) to the Australian Taxation Office (‘ATO’) if the price was $2 million or more unless the vendor provided them with a clearance certificate prior to settlement. The purpose was to assist the ATO in collecting capital gains tax from foreign residents and applied regardless of whether the vendor was in fact a foreign resident.
However, the Federal Government has announced that for contracts entered into from 1 July 2017, the threshold is reduced from $2 million to $750,000.00 and the withholding amount has been increased from 10% to 12.5% of the price. With a median house price of approximately $1.1 million, this change is anticipated to affect most conveyancing transactions in Sydney.
Vendors of property sold for at least $750,000.00 will need to ensure they obtain clearance certificates from the ATO before settlement or risk 12.5% of the price being withheld from them. Purchasers on the other hand will need to ensure they receive a clearance certificate from the vendor prior to settlement otherwise they will face penalties from the ATO should they fail to remit the 12.5% as required.
Purchasers will also need to ensure the contract of sale contains sufficient clauses allowing them to remit the 12.5% otherwise they risk being in default by complying with their legislative requirements. To this end, we note the NSW Law Society has released an updated 2016/2017 version of their contract of sale that should be used for contracts entered into from 1 July 2017. Earlier contracts should include a special condition on the same terms as the Law Society’s standard clause 31.
Surcharge purchaser duty
The existing surcharge duty charged for foreign purchasers of residential property in New South Wales has been increased from 4% to 8%. This surcharge is calculated on the dutiable value of the property (e.g. the price). For example, if a foreign purchaser buys a property for $1 million, they would be required to pay $80,000.00 on top of the normal stamp duty amount.
Furthermore, the permanent residents and New Zealand citizens will no longer enjoy the same exemption as Australian citizens when it comes to surcharge duty. Permanent residents and New Zealand citizens will only be exempt from surcharge duty if they reside in the property as their principal place of residence for 200 continuous days for the first 12 months. This means surcharge duty will be imposed on any investment properties purchased by permanent residents and New Zealand citizens.
New Home Grant scheme cancelled
Purchasers of new homes in New South Wales can no longer receive the $5,000.00 grant per financial year. This removes another incentive for investors in real estate.
The existing extension of the due date for stamp duty in New South Wales off-the-plan purchases will no longer be available to investors. Instead, only those who intend to reside in the off-the-plan home or apartment for a continuous period of six months within 12 months from settlement will be eligible to receive the 12 month extension.
First Home Buyers
In addition to making foreign investment less attractive, the NSW Government has announced a new First Home Buyers Assistance scheme. First home buyers will not have to pay stamp duty for any home they purchase (whether it is new or existing) if the price is under $650,000.00 with concessions if the price is between $650,000.00 and $800,000.00.
First home buyers can also receive a $10,000.00 grant for building a new home in New South Wales where the prices in the land and building contracts do not exceed $750,000.00 or purchasing a new home worth up to $600,000.00.
If you require assistance with purchasing your first home or have a conveyancing related enquiry, please contact HPL Law Group on (02) 9905 9500.