Taxing foreigner property holdings at a higher rate to become the norm

Taxing foreigner property holdings at a higher rate to become the norm
Taxing foreigner property holdings at a higher rate to become the norm

The practice of taxing foreigner property holdings at a higher rate than the locals is a world wide trend finally taken up by Australian legislators.

It looks like it will become the norm too in Sydney any day now. 

Just like the Labor Government in Victoria in 2015, overseas property investors look set to soon have to pay more to own a home in NSW under Treasurer Gladys Berejiklian’s upcoming state budget­.

The Daly Telegraph's state politics reporter Andrew Clennell says Ms Berejiklian is seriously considering a 1.5 percent foreigner land tax surcharge to "tackle housing affordability­" in the June budget.

It would mimic a 1.5 percent surcharge in Victoria, ­although there is a hint Ms Berejiklian could impose a slightly lesser rate of 1 percent, perhaps to obtain a competitive advantage over our southern rivals.

Victoria also imposes an extra 7 percent on stamp duty for foreign buyers but Ms Berejiklian is understood to have ruled that out.

In Victoria Premier Daniel introduced a 3 percent stamp duty charge and a 0.5 percent land tax levy for foreigners in his first 2015 budget and increased them to 7 percent and 1.5 percent this year.

Those measures are predicted to raise $486 million over four years.

Forget the tackling housing affordability, such measures are really just a cash grab against a buying group whose voice can't be heard at the ballot box.

Since words of the higher land tax emerged industry groups have been quick to suggest the proposals against foreign investors could actually slow down housing construction supply.

“The proposals by NSW Treasury to impose surcharge on land tax on foreign investors in housing will be a disincentive to invest in NSW,” says Urban Taskforce CEO, Chris Johnson. 

Johnson's taskforce says the Sydney region needs 33,200 new homes a year, but last financial year only 27,348 were built leaving a shortfall of nearly 6,000 homes.

"We must do all we can to boost housing supply and foreign investors have been contributing to this particularly through new apartments.

"To send a message that these investments are not wanted in NSW can only reduce the flow of capital into new housing.”

“Foreign investors often help make development projects become feasible by underpinning the pre-sales with up to 15% of purchases and this helps local purchasers buy into a viable project.”

But there has already been a slow-down in housing approvals in NSW inpart due to prior budgetry measures.

NSW lead the way on restricting first home grants for new builds rather than established homes, and this has contributed to record low recipients.

In the last budget NSW land tax revenues were forecast to rise at a faster rate than stamp duty revenues, rising from $2.49 billion this financial year to $3.11 billion by 2018-19.

This was based on no change in the tax rate, just reflecting growth in land values. 

The benchmark land tax base is the average of the last three years unimproved land value of all land owned above the indexed threshold for that year. The benchmark tax rate for the 2015 land tax year is $100 plus 1.6 percent of the land value between the thresholds of $432,000 and $2,641,000, and 2 percent thereafter.

Total stamp duty revenues were forecast to rise from $7.29 billion this year to $8.6 billion in 2018-19.

Property has become the constant cash cow for increasing desperate governments with just more than half of state and local government tax revenue now coming from property.

And it ain't ever going to ease off.

This article was first published in the Saturday Daily Telegraph.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

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Stamp Duty Land Tax

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