Changes to property transfer tax: introduction of a rezoning surcharge

Property transfer tax

A key issue in this area is ensuring that asset and share deals are treated equally that involve partnerships and corporations with domestic real estate assets. In a share deal, shares in a company are transferred; in an asset deal, individual assets such as real estate are sold.

Currently, property transfer tax is payable for partnerships if 95% of the shares are transferred to new partners within five years. This rule has now been extended to corporations, with the qualifying period increased from five to seven years.

Previously, a share deal would also trigger property transfer tax if at least 95% of the shares in a company that owns real estate were consolidated under a single shareholder. In future, this threshold will be reduced to 75%. Additionally, indirect acquisitions of shares in real estate-owning companies may trigger property transfer tax. To determine the level of indirect participation, the percentage shareholdings at each level are multiplied together. If the calculation results in indirect participation of at least 75%, a taxable property transfer tax event is triggered. In future, the concept of a corporate group will no longer be relevant to the definition of 'consolidation under a single shareholder'; the focus will instead be on a group of acquirers. However, exceptions are provided for in this respect in the case of reorganisation within a group.

Increase in the tax rate and the tax base

Another issue is the increase in tax rates and bases for share transfers and reorganisations involving real estate companies. Real estate companies are those whose primary business is selling, renting and managing real estate. For transactions involving these companies, the property transfer tax will increase from 0.5% to 3.5% of the property's fair market value. For non-real estate companies, the property transfer tax will remain at 0.5% of the property value. Real estate-owning companies are also exempt from the increase if all participating shareholders belong to the privileged group of persons (family members) before and after a share transfer, consolidation or reorganisation
 

Rezoning surcharge for property income tax

In future, capital gains from the sale of land that has been rezoned, for example from green belt to building land, will be subject to a higher rate of property income tax. A rezoning surcharge of 30% will be added to the gains from the sale of rezoned land (but not buildings) in future. This surcharge will only be taken into account up to the point at which the sum of the capital gain and the surcharge does not exceed the sale proceeds (capping). This new regulation will apply to sales after 30 June 2025, provided that the rezoning took place after 31 December 2024.