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The High Court of Australia (HCA) has unanimously dismissed an appeal by Godolphin Australia Pty Ltd (Godolphin), concluding that the company failed to demonstrate that the “dominant use” of its properties was for primary production, thus ineligible for the primary production land tax exemption.
In this decision Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2024] HCA 20, handed down on June 5, 2024, the HCA addressed the interpretation of “land used for primary production” and the “dominant purpose” of land under section 10AA of the Land Tax Management Act 1956 (NSW) (Land Tax Act).
The HCA upheld the NSW Court of Appeal’s (NSWCA) majority view that the term “dominant use” in section 10AA(3) applies both to the “maintenance of animals” and the purpose of sale as specified in section 10AA(3)(b), adopting what they termed the “use-for-a-purpose” construction.
To qualify for the primary production land tax exemption under section 10AA(3)(b) of the Land Tax Act, the dominant use of the land must be for maintaining animals, and the dominant purpose of this use must be selling the animals or their natural increase or bodily produce.
The HCA clarified that section 10AA(3)(b) uses a composite phrase, combining the identified use of the land with a specified purpose.
The word “dominant” applies to both the use of the land and the purpose for which it is used.
Determining the dominant purpose involves evaluating the amount of land used for various purposes, the nature, extent, and intensity of those uses, the time, labor, and resources spent, and the financial gain from each activity.
An objective observer’s perspective is crucial in this assessment.
Godolphin was assessed for land tax for the years 2014 to 2019 on two properties used for breeding thoroughbred horses and racing them.
The business operations included selling about 70% of the bred horses and retaining the most promising for racing, which aimed to enhance the horses’ value and breeding fees.
Despite the racing operation running at a loss, it occupied the majority of the land and resources, while the profitable breeding operation used a smaller portion of the land.
Godolphin argued that the properties should be exempt from land tax, claiming that the dominant use of the land was for maintaining animals for sale.
The primary judge ruled in favor of Godolphin, viewing the breeding and racing operations as integrated and serving the overall objective of increasing the value of the stud operations.
This led to the conclusion that the properties were used for primary production and thus exempt from land tax.
The NSWCA reversed this decision, with the majority finding that the words “dominant use” in section 10AA(3) required examining the purpose of maintaining the animals.
The court concluded that the dominant use of the land was for racing, not for selling the horses, making the land ineligible for the exemption.
Godolphin’s appeal to the HCA contested the NSWCA’s interpretation, arguing that the “dominant use” should only apply to the maintenance of animals, not the purpose of selling them.
They contended that the sale purpose need only be significant, not dominant.
However, the HCA dismissed these arguments, affirming that the word “dominant” qualifies the composite phrase encompassing both the use of the land and the purpose.
The court ruled that the land’s predominant use for racing activities disqualified it from the primary production exemption.
The HCA’s unanimous decision reinforces the strict interpretation of the primary production land tax exemption under section 10AA(3)(b).
The ruling emphasizes the necessity of demonstrating that the dominant use and purpose of the land align with the specified criteria for the exemption. Godolphin’s appeal was dismissed, upholding the NSWCA’s decision and confirming the land’s ineligibility for the primary production exemption.
The case underscores the importance of clearly establishing the dominant use and purpose of land in tax exemption claims.
If you have any queries on this article on the Godolphin Appeal on Land Tax Exemption, or any other Australian tax matters, then please get in touch.
On 21 May 2024, in Australia, the Commercial and Industrial Property Tax Reform Act 2024 received Royal Assent, officially enacting the Commercial and Industrial Property Tax (CIPT).
The new CIPT regime will apply to eligible transactions from 1 July 2024.
From 1 July 2024, qualifying land will enter the CIPT regime upon the occurrence of an entry transaction, an entry consolidation, or an entry subdivision.
Land will qualify for the regime if it has been allocated an Australian Valuation Property Classification Code (AVPCC) in the ranges of 200 to 499 (commercial, industrial, and extractive industries) or 600 to 699 (infrastructure and utilities land).
Additionally, land used solely or primarily for eligible student accommodation will also qualify for the regime.
The CIPT will not apply to properties coded for residential, primary production, community services, or sport, heritage, and cultural purposes.
If an interest of 50% or more in a qualifying property is sold, the entire property will enter the CIPT regime, with CIPT payable after a 10-year transition period.
Once land enters the regime, stamp duty will be payable one final time, and subsequent sales of the same property will be exempt from duty, provided the land continues to be used for commercial or industrial purposes.
Following a transition period of 10 years, the CIPT will apply annually at a flat rate of 1% of the site value of the land (0.5% for build-to-rent land).
Properties sold under contracts entered into before 1 July 2024, will not enter the regime, even if the settlement occurs after that date.
Purchasers seeking to invest in commercial or industrial land on a long-term basis should seek urgent advice on whether they should enter into a contract of sale before 1 July 2024.
This is because the first purchaser of land that causes it to enter the CIPT regime will be liable for both stamp duty and the CIPT after a period of 10 years.
The above information provides a snapshot of the new CIPT regime, highlighting several issues that purchasers must urgently consider. Further detail regarding the new regime is available from official sources.
If you are considering acquiring commercial or industrial land, the timing of entry into any contract will be critical in determining whether you will have ongoing exposure to the CIPT after the 10-year transition period.
If you have any queries about this article on the Commercial and Industrial Property Tax, or Australian tax matters more generally, then please get in touch.
Italy’s Value Added Tax (VAT) regulations regarding residential property appear on the brink of a significant change.
Currently, rental income from residential properties generally enjoys a VAT exemption.
This includes scenarios such as social housing, where landlords may opt to apply VAT.
However, the Italian VAT authorities restrict the recovery of VAT on costs related to these properties, a constraint primarily aimed at entities outside the construction industry—the only sector currently allowed to reclaim input VAT on residential real estate expenses.
This longstanding policy strictly adheres to the Italian VAT law. However, it has sparked concerns about whether it is consistent with the fundamental VAT principle of neutrality, particularly given the properties’ taxable use.
This rigid approach can lead to market distortions, notably contrasting with the more flexible VAT recovery rules applied to residential properties used in the hospitality sector.
To rectify these issues, a new Legislative Decree is expected as part of an ongoing tax reform in Italy.
This decree proposes to eliminate the current restrictions on VAT recovery that are based on the cadastral classification of buildings.
The intention is to extend the principle of VAT neutrality more broadly, ensuring fair treatment across different uses of residential property.
For now, the existing regulations remain in effect: VAT on expenses for residential properties, even those opted for taxation, cannot be reclaimed.
The upcoming decree, however, promises a significant shift towards a more inclusive and neutral application of VAT rules in the residential property sector, aligning tax practices with market realities and ensuring equity among different property uses.
If you have queries about this article on the proposals for Italy to change VAT Rules on Residential Property, or tax matters in Italy more generally, then please get in touch.
In a time of increasing financial strain due to the European Central Bank’s (ECB) continuous interest rate hikes, families are feeling the pinch.
So many people will be turning to that even more esteemed bank. The Bank of Mum and Dad!
In some scenarios, this doesn’t just mean cash hand outs. It might also mean gifting properties to children (or indeed other family members).
But how can property be gifted in Spain without attracting high taxes?
Gifting property in Spain is becoming a popular way for parents, spouses, and family members to support their loved ones without incurring excessive taxes.
This practice has gained traction as several regions in Spain, including Andalucia, Madrid, and Galicia, have implemented tax laws that significantly reduce or eliminate inheritance and gift taxes.
Gifting property or money occurs in various scenarios:
The Donor and the donee should be aware of the potential tax liabilities involved:
This tax applies if the property’s value has increased since you acquired it.
The capital gain is calculated by subtracting the purchase price and related costs from the property’s value at the time of gifting.
You will be taxed on this gain at a rate of 19% (or 24% if you’re a non-resident donor from outside the EU).
This is a local tax levied by the municipality on the increase in the land value of the property since it was last acquired.
The rate and rules for calculating Plusvalía Tax can vary depending on the specific location of the property.
Spain has a national gift tax, but rates are set by individual regions (Autonomous Communities).
In some regions, there can be significant exemptions for gifts to close relatives, such as children or spouses.
For instance, some regions offer a nearly zero tax rate for gifts between parents and children.
It’s important to research the specific tax rates that apply in the region where the property is located.
Besides taxes, there are additional expenses to consider, including lawyer’s fees, notary fees, and land registry fees.
To ensure a smooth and tax-efficient transfer, it’s crucial to retain a lawyer from the beginning. The gift deed must be prepared and witnessed by a Spanish notary.
Proper planning is essential, as failing to follow the correct legal procedures can lead to a significant tax burden.
For joint property owners seeking to re-arrange their holdings, a DJPO can be an effective alternative, reducing taxes by up to 86%.
It applies in situations like divorce, re-arranging inheritances, and property re-organization among family and friends.
Gifting property can be an excellent way to help loved ones while minimizing tax obligations.
To avoid high taxes and ensure a smooth legal process we would certainly recommend tapping into local expertise
If you have any queries about this article on gifting property in Spain and tax, or other Spanish tax matters, then please get in touch.
In a significant policy shift outlined in the Spring Budget 2024, Chancellor Jeremy Hunt has announced comprehensive reforms to the tax treatment of non-UK domiciled individuals (non-doms) residing in the UK.
These changes, aimed at restructuring the non-dom regime, will notably impact potential purchasers of UK property.
Here, we delve into the key aspects of the proposed adjustments and what they mean for buyers of UK real estate.
Non-doms are individuals whose permanent home is not in the UK, yet who spend part of the year living in the country.
Under the current system, non-doms can avoid UK tax on their foreign income and gains (FIG) by not bringing these funds into the UK, leveraging the ‘remittance basis’ of taxation.
The UK Government plans to eliminate the non-dom regime, transitioning to a new residence-based tax system effective from 6 April 2025.
Under this new regime, individuals moving to the UK after spending at least a decade abroad will enjoy a four-year period during which they are exempt from UK tax on their worldwide FIG, regardless of whether the income is brought into the UK.
The transition period in 2025/26 and 2026/27 will also introduce specific reliefs.
It’s important to note that while the UK Inheritance Tax (IHT) exposure for non-UK assets may change under the new rules, the IHT treatment for UK residential property remains unchanged.
This means all property owners, regardless of their domicile status or eligibility for the four-year exemption, will still face IHT on UK properties.
For non-residents purchasing UK property, the upcoming changes will have no direct impact, provided they manage their days spent in the UK carefully to avoid becoming tax residents.
Conversely, those relocating to the UK might find the new regime more favorable, as they can bring FIG into the UK without tax implications for the first four years of residence—a simplification of the current system.
However, buyers planning a long-term move should consider the broader implications on their worldwide assets, as residing in the UK beyond four years subjects their global FIG to UK tax, and a ten-year stay brings their entire worldwide estate under the UK IHT regime.
Investors purchasing properties for their children or for investment purposes need to consult with advisors to navigate the best funding strategies and understand their IHT exposure.
A Singaporean buying a property in Mayfair for rental and capital appreciation purposes will remain unaffected by the tax regime changes, given their non-resident status.
However, the tax rate on gains from UK residential property sales will adjust from 28% to 24% starting 6 April 2024.
A couple from the Middle East buying a London property for short stays will need to carefully manage their time spent in the UK to avoid residency and its tax implications.
Consulting with tax advisors is crucial to understanding the residency thresholds.
An American buying a flat in London for his daughter presents a unique case due to the US’s global taxation on citizens.
The entrepreneur might face lesser impact from the UK’s tax changes and should explore ways to optimize his tax position, considering the US and UK tax obligations.
These changes mark a pivotal moment for non-dom individuals engaged in the UK real estate market.
It’s imperative for potential buyers and existing non-dom property owners to seek comprehensive advice to navigate the evolving tax landscape effectively.
Final thoughts
If you have any queries on this article on the Spring Budget 2024: Implications for Non-Dom Real Estate Buyers, or UK tax matters more generally, then please get in touch.
The NSW First Home Buyer Choice introduces significant changes to property tax payment options, offering eligible first home buyers the flexibility to choose between upfront transfer duty or annual property tax.
Here’s what you need to know about this initiative and its potential impact on your property purchase:
Enacted under the Property Tax (First Home Buyers Choice) Act 2022, this scheme allows eligible first home buyers purchasing properties valued up to A$1.5 million to opt for either upfront transfer duty or annual property tax payment.
This option is in addition to existing first homeowner grants or assistance provided by the NSW Government.
To qualify for the First Home Buyer Choice, purchasers must meet certain criteria:
Buyers can opt for their preferred tax option based on their financial circumstances and long-term plans:
The NSW First Home Buyer Choice provides valuable flexibility for eligible buyers, offering an alternative to traditional transfer duty payments.
By weighing the benefits and implications of each tax option, buyers can make informed decisions aligned with their financial objectives.
If you have any queries about this article on the NSW First Home Buyer Choice, or Australian tax matters in general, then please get in touch.
The UK government mandates reporting and payment of Capital Gains Tax (CGT) within 60 days of disposing of non-primary residential properties.
This guide explains the essentials of this rule, which has been in effect since April 2020.
Initially known as the “CGT 30-Day Rule,” the timeframe for reporting CGT was extended to 60 days in October 2021.
This rule applies when you sell, gift, or transfer a residential property that isn’t your main residence.
Not all property disposals require reporting under the 60-day rule. Key exemptions include sales of your main home.
However, disposals of second homes, holiday properties, HMOs, and buy-to-let or buy-to-sell properties must be reported.
Non-UK residents are also subject to the 60-day reporting requirement for any residential property disposal within the UK, regardless of profit or registration for self-assessment.
The gain calculation involves subtracting the purchase price from the sale proceeds or fair market value, deducting allowable expenses and the annual tax-free allowance, then applying the appropriate CGT rate based on your income level.
You’ll need to register for HMRC’s online services to report the gain and pay any CGT due. This process is essential for compliance and avoiding potential penalties.
If you’re already completing a self-assessment return, you must declare the disposal and gains therein.
Otherwise, fulfilling the 60-day CGT reporting requirement suffices, eliminating the need for a separate self-assessment.
Missing the 60-day deadline can result in penalties and interest charges on the overdue CGT.
Immediate reporting, even if late, is better than non-compliance.
You may appeal penalties or request mitigation for delays due to valid reasons such as illness or bereavement. Providing evidence and explanations is crucial for a successful appeal.
The countdown starts on the property’s completion date, marking the legal transfer of ownership.
Accurate record-keeping of this date is vital for determining the reporting deadline.
The 60-day CGT reporting rule requires awareness and timely action to avoid penalties.
While the process may appear daunting, understanding your obligations and seeking professional advice can ensure compliance and minimize tax liabilities.
If you have any queries about this article on the UK’s 60-Day CGT Reporting for Residential Property Sales, or any other UK tax matters, then please get in touch.
Starting in 2024, France’s real estate wealth tax legislation introduces a significant change concerning the deductibility of certain debts.
This alteration ensures that debts incurred by entities unrelated to a taxable asset are excluded from the wealth tax assessment.
The Finance Law for 2024 has refined Article 973 of the French tax code, thereby affecting the valuation of shares for wealth tax calculations.
Under the new law, debts “not related to a taxable asset” by a company cannot influence the wealth tax.
This shift brings the rules for indirect debts, via companies, in line with those already set for direct taxpayer debts.
Prior to this update, there were no specific restrictions on the types of company debts that could be factored into the wealth tax calculation.
It meant that even debts for non-taxable assets, like movable or financial holdings, could be deducted.
However, starting with the 2024 tax year, the law will align the treatment of all debts, ensuring a consistent approach whether the debt is direct or through a company’s liabilities.
The FTC doesn’t explicitly define what constitutes a debt “relating to a taxable asset.”
Hence, guidance may be sought from Article 974, which outlines several deductible debt categories, including those for acquisition, maintenance, improvement, or associated taxes of real estate assets.
There’s an interesting twist in the amendment: the valuation cap.
The law states that the taxable share value after considering deductible debts should not exceed the market value of the shares or the market value of the company’s taxable real estate, less related debts – whichever is lesser.
This clause requires careful interpretation to safeguard taxpayers from undue taxation.
Nonetheless, this cap will not impact the enforcement of other deductibility limits, like those on shareholder loans.
In light of these changes, it’s crucial for taxpayers to diligently track the purpose of corporate debts to affirm their connection to taxable assets. Clear accounting practices and well-documented loan agreements outlining the use of funds are now more important than ever to ensure compliance and avoid potential overtaxation.
With the scope of wealth tax evolving, sensible planning and administration are key to navigating these changes effectively.
If you have any queries about this article on French Real Estate Wealth tax and the 2024 changes, or French tax matters more generally, then please get in touch.
In a bid to address the housing supply crisis, British Columbia (BC) has announced plans to introduce a provincial legislation that targets real estate investors with a new home flipping tax.
Aimed at discouraging quick resale for profit, this tax could significantly affect the dynamics of property transactions in the province.
Scheduled for homes sold from 1 January 2025, onwards, the proposed tax specifically targets properties resold within two years of acquisition.
Here’s a breakdown of how it’s designed to work:
Mrs Miggins bought a property on 1 February 2024 and sold on 1 January 1, 2025.
Mrs Miggins will incur a 20% tax on sale proceeds, as the sale falls within the first 365 days.
Mr Blackadder bought a property on 1 February 2024 and sold on 1 April 2025.
This falls into the second year post-purchase, attracting a tax rate lower than 20% (though not yet determined.
Baldrick purchased a property on 1 May 2023 and sold on May 15, 2025.
Baldrick escapes the tax entirely as the sale falls outside the two-year window.
Notably, the legislation considers life changes and other circumstances, providing several exemptions to the tax.
These include cases of divorce, job relocation, and personal safety concerns, among others.
Additionally, selling one’s primary residence may allow an exclusion of up to $20,000 from taxable income generated from the sale.
There are also provisions for exemptions in situations enhancing the housing supply or involving construction and development activities.
It’s crucial to note that the proposed provincial tax will complement, not replace, Canada’s existing Residential Property Flipping Rule.
This federal rule already treats income from properties sold within 365 days as taxable business income, disallowing capital gains exclusion rates or the Principle Residence Exemption.
Consequently, properties flipped within the first year post-purchase in B.C. will be subject to both federal business income tax and the provincial flipping tax.
The introduction of this new tax undoubtedly represents as potential extra cost of doing business for real estate investors and developers, They will, of course, need to recalibrate their strategies.
The new tax is clearly designed to curb speculative buying and support the local housing market.
However, those who are active investors and developers, will need to consider how these new tax proposals will effect their activities
If you have any queries about this article on ‘British Columbia Proposes New Home Flipping Tax’ or Candian tax matters more generally, then please get in touch.
For non-resident individuals investing in Spanish real estate, understanding and complying with the specific tax obligations is crucial.
Our Tax Natives can offer comprehensive guidance throughout the acquisition process and beyond, ensuring clients meet their tax commitments effectively.
Non-resident owners of properties not put up for rent are subject to the Spanish Non-Resident Income Tax Law.
They face taxation on a deemed income, calculated as 1.1% of the cadastral value in cities like Barcelona (2% in other areas without recent cadastral reviews).
This approach does not permit deductions for any property-related expenses. The applicable tax rate is 19% for EU residents (including Iceland, Norway, and Liechtenstein) and 24% for those residing outside the EU.
The first year’s tax is calculated based on the period the property was owned.
When non-residents rent out their Spanish property, the income received is taxable under the same law.
EU residents can deduct property-related expenses from their rental income, while non-EU residents cannot.
The tax rate mirrors that for non-rented properties: 19% for EU residents and 24% for non-EU residents.
Rental agreements with related parties must reflect market values, adhering to transfer pricing rules.
The Wealth Tax targets non-resident individuals owning assets within Spain, taxing the net value of such assets.
Debt incurred for asset acquisition within Spain is deductible. A recent legal amendment extends this tax to non-listed companies owning significant Spanish real estate.
Tax rates progress from 0.2% to 3.5%, with a 700,000 euros exemption threshold for non-residents.
The applicability of Double Tax Treaties or Spanish exemptions should be analyzed.
The Real Estate Tax (IBI) applies to both rural and urban property ownership, based on the cadastral value set by local authorities, typically below market value.
The tax rate varies by locality, with the owner as of January 1st each year responsible for payment.
Automatic payment arrangements are available.
Non-resident property ownership in Spain involves various tax obligations, from income tax on deemed or actual rental income to wealth and real estate taxes.
Proper understanding and management of these obligations are essential to avoid penalties and ensure compliance.
If you have any queries about this article and non-residents owning or buying real estate in Spain, the get in touch.
We have Tax Natives ready and waiting to assist you, or your client, through every phase of property investment, offering expert advice on tax compliance and planning.