06 Oct 2017

CU LAB: Doing Business in Australia – Indirect taxes

Kelvin Ng covers the range of indirect taxes that may be applicable when doing business in Australia. 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.

TRANSCRIPT

So for foreign investors looking to invest in Australia there are two key indirect taxes: the first is the Goods and Services Tax or GST, and the second are duties and taxes that affect transfers of land in particular. 

GST is a broad-based consumption tax that's imposed at the rate of 10% on most suppliers by businesses.  That includes supplies of goods, property and other things and it also includes potentially cross-border transactions, so for someone looking to invest in Australia the GST will be an important consideration, both the transactions and operations: for example whether or not a transaction is actually subject to GST, whether the transaction requires an overseas-based business to register the GST in Australia, and even things such as pricing. 

So at a State level stamp duties and land taxes are particularly important for investors looking to invest in Australian real estate.  All States and Territories in Australia have stamp duties on transfers of interest in real property and other types of property, and these can apply to both direct and indirect acquisition of interests.  And the rates of duty vary by jurisdiction, so for example in New South Wales the general rate of duty is 5.5%.

Most States and Territories in Australia also have a land tax which is an annual tax on landholdings and that includes certain holdings of leasehold interests.  So for foreign investors looking to invest in real estate in Australia it will be necessary to consider these land taxes and stamp duties in their business case and also costs of landholding in Australia.

In terms of GST there's been a couple of key changes.  From 1 July 2017 the GST applies to cross border and tangible supplies made to Australian consumers and that includes things such as supplies of services and software. 

For the first time we have overseas-based businesses that are either required to enter into the GST system or are directly affected by the Australian GST, and these businesses need to consider how the rules apply and also what changes are needed to their contracts and their systems in order to comply with these changes.

From 1 July 2018 GST will also be applied to low-value imported goods imported by consumers in Australia, so businesses that are selling goods to consumers in Australia will need to consider how these rules apply to them.

At a State level certain States have introduced surcharge duties for foreign purchasers of residential land.  Surcharge land taxes have also been introduced. It's important for foreign investors looking to invest in real estate to factor in whether these surcharge duties and land taxes apply to those transactions.  Now these surcharge duties and taxes are only imposed in certain States at the moment but there is potential for these to be rolled out in other States.