Commercial Property Law

Australian competitive supply of commercial property has attracted a growing number of foreign companies to set their foots into her territory as she has consistently been emerging as a low cost base with excellent infrastructure and if the country were to maintain its commercial advantages as a preferred business location, specifically within the Asia-Pacific region, her commercial property laws have to be transparent and tax friendly. This is because, In the Asia-Pacific region, the main financial markets outside Tokyo (Japan), are situated in Australia, Hong Kong and Singapore. Though these centres are similar in terms of prime office market size, yet they are dissimilar in terms of property market characteristics. The most striking difference is that the Australian CBD prime office market is the most competitive within the Australian construction market.

The Property Laws cover a wide ambit within which the Commercial Property Laws handle specific acts and rules to govern the purchase of vacant or developed commercial real estate.

About Commercial Property Laws:

The Commercial Property Law in Australia mainly deals with taxation pertaining to (a) Stamp Duty, (b) Land Tax. Or (c) Goods and Services Tax and (d) Capital Gains Taxes. Some of the States have introduced a comprehensive Goods and Services Tax (GST) which has the effect of abolishing  the indirect taxes mentioned in a and b.

In jurisdictions where they are applicable, Stamp duty is levied on a wide range of transactions such as agreements for acquisitions of real estate, businesses and some marketable securities, as well as leases and financing transactions. It is a state tax and is charged either at a fixed rate or at an ad valorem basis (i.e. on an increasing scale having regard to the value of the property or the consideration.).

Land tax is an annual state tax based on the ownership of land and, in some states, on the usage of land. It is prevalent in all states and the Australian Capital Territory except in   the Northern Territory. On a broad level, the land tax is levied on the total unimproved value of the land held by the owner at a specified date. Land tax rates and thresholds vary from state to state, and over time.

The Goods and Services Tax (‘The GST’) has been in operation since 2000. This tax is charged at a flat rate of 10 per cent and is levied on the supply of goods and services including dealings in real estate, other property and rights. It is essentially a value added tax and hence the burden is borne by the consumer and or the end-user.

Capital Gains Tax (CGT);

Under Australia’s domestic taxation laws and, in particular, the relevant Capital Goods Taxation provisions, the gain on the sale of Australian real property is subject to Australian income tax. overseas investors would have to particularly note that Under Australia’s double tax agreements (DTAs), the country reserves the right to tax the gain on the sale of Australian real property and as a result, where a non-resident makes a gain on the sale of Australian real property, and wherever, a non-resident makes a gain he/she/the corporate entity would be subject to Australian Capital Gain Tax on that gain.

Types of Commercial Property Law;

Some of them are Law of Agency, dealing with types of agents, their authority and power, agency and legal relationships, transfer of property in goods governing contract of sale, transfer (and) reservation of property and transfer of title and remedies for the sale of goods, laws of partnership including but not restricted to formation of partnerships, limited partnerships, relationships of the partners within themselves, liability enjoined upon them, dissolution of partnership.

Example of application of Commercial Property Law in Australia*:

An example of how the Capital Gains Tax in Australia is applied is taken for consideration. An incidence to pay Capital Gain Tax would arise only in the event of sales of a property. This enables an owner to defer the liability of CGT for years by holding on to the property, thus, leading to the principle that 'tax deferred is tax saved'. Since in general it is observed that the property values are subjected to only low volatility in ordinary times, the holding strategy becomes a sustainable one.

A simulation exercise is carried out hereunder:

Let us assume that a unit was bought for @100000 and sold at 195000 after an elapse of 8 years. The actual incidence of taxable amount would be $80000 as $15000 would be an admissible deduction towards expenses (which is @22.5 cents a dollar). The actual amount of tax payable, viz, $18000 had, in this case, been retained to generate a rental income, let us say, in this case at an annual rate of 5%. This works out at $900 a year which in effect brings down the Capital Gains Tax.

In the working of the CGT, the calculations always are done with a view to pass on the advantages to the holder of the property and not the state. For instance if the property is owned by for more than 12 months (long term Capital Gains would apply) and if it has been bought in the name of an individual or arising out of a discretionary trust, only 50% of the capital gains would be added to the tax payers income. This brings down the effective rate CGT from 45% to 22.5%, thus passing on to the tax payer the benefit of the other half (22.5%) of the incidence.

(* Source:  www.businesslawyer.com-au/superannuation_property.htm)

In view of the specialised and micro economic nature of the Commercial Property Tax Law, it is suggested that the readers may kindly refer to the following websites which are both authoritative and useful, as it is advisable to obtain professional advice about taxation issues before entering into any property transaction

Australian Property Institute

www.propertyinstitute.com.au

Property Council of Australia

www.propertyoz.com.au

Housing Industry Association

www.buildingonline.com.au

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