* continuous construction commencing within 5 years;
* a minimum amount equivalent to 50 per cent of the acquisition cost or current market value of the land (whichever is higher) must be spent on development; and
* once construction is completed, the parties notifying the completion date and actual development expenditure.
Foreign purchasers intending to acquire real estate in
Entering Into A Contract
All contracts by foreign persons to acquire interests in Australian real estate must be made conditional upon foreign investment approval, unless approval was obtained prior to entering into the contract.
For properties to be purchased at auction, prior foreign investment approval must still be obtained and advice provided whether the parties were successful or not, and if so, a copy of the signed contract forwarded to the Foreign Investment Review Board (FIRB) after the auction.
Who is Exempt?
Exemptions include:
• Acquisitions by Australian citizen’s resident abroad;
• Acquisitions of property zoned residential by foreign nationals who hold permanent resident visas or hold, or who are eligible to hold, a 'special category visa' (eg a
• foreign persons purchasing, as joint tenants, with their Australian citizen spouse property that is zoned residential.
Under the Act, a foreign person is:
• a natural person not ordinarily resident in
• a corporation in which a natural person not ordinarily resident in
• a corporation in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate controlling interest (that is, a total holding of 40 percent or more);
• the trustee of a trust estate in which a natural person not ordinarily resident in
• the trustee of a trust estate in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest.
A substantial foreign interest (ie, a controlling interest) occurs when a single foreigner (and any associates) has 15 per cent or more of the ownership or several foreigners (and any associates) have 40 per cent or more in aggregate of the ownership of any corporation, business or trust.
The Government seeks to ensure that foreign investment in residential real estate increases the housing stock. The Government, therefore, seeks to channel foreign investment into activity that directly increases the supply of new housing (that is, new developments - house and land packages, home units, townhouses, etc) and brings benefits to the local building industry and their suppliers.
The policy on developed residential real estate is negative. The effect is twofold. First, it helps reduce the possibility of excess demand building up in the existing housing market and secondly, it aims to encourage the supply of new dwellings, many of which would become available to Australian residents, either for purchase or rent, therefore maintaining greater stability of house prices and the affordability of housing for Australians.
* The existing residence can not be occupied prior to demolition and redevelopment.
* Where the property is at the end of its economic life (ie, derelict, uninhabitable) a proposal may be approved for the construction of one dwelling.
* To demonstrate that the property is uninhabitable and must be demolished, a valuation of the existing structures by a licensed valuer may be required. Photographs and other forms of evidence may also be required.
* Once construction is completed, parties notify the completion date and actual development expenditure.
* Once these conditions have been fulfilled, properties acquired under this category may be rented out, sold to Australian interests or other eligible purchasers, or retained for the foreign investor's own use.
* the developer has constructed a similar dwelling with overlapping construction dates;
* the similar dwelling is being sold, or has been sold for a similar consideration;
* the similar dwelling is in a proximal location; and
* the similar dwelling has been, or is to be, purchased by an Australian or other eligible person.
If a similar dwelling does not exist, foreign investment approval is not available under this category.
A property purchased under this category may be rented out, sold to Australian interests or other eligible purchasers, or retained for the foreign investor's own use. Once the property has been purchased, it is second-hand real estate and is subject to the restrictions applying to that category.
1. Foreign nationals temporarily resident in
* Persons who hold visitor or bridging visas are not eligible for approval under this category.
* This category includes students 18 years of age and over studying courses of more than twelve months duration at recognized tertiary institutions.
o A general limit of $300,000 applies to the value of properties acquired by these students.
2. Foreign companies with a substantial Australian business, buying for named senior executives continuously resident in
* Unless there are special circumstances, foreign companies normally will not be permitted to buy more than two dwellings under this category.
Foreign companies would not be eligible under this category where the property would represent a significant proportion of its Australian assets.
FS-2007-18, April 2007
The Internal Revenue Service reminds taxpayers to follow appropriate guidelines when determining whether an activity is a business or a hobby, an activity not engaged in for profit.
In order to educate taxpayers regarding their filing obligations, this fact sheet, the eleventh in a series, explains the rules for determining if an activity qualifies as a business and what limitations apply if the activity is not a business. Incorrect deduction of hobby expenses account for a portion of the overstated adjustments, deductions, exemptions and credits that add up to $30 billion per year in unpaid taxes, according to IRS estimates.
In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
In order to make this determination, taxpayers should consider the following factors:
*
Does the time and effort put into the activity indicate an intention to make a profit?
*
Does the taxpayer depend on income from the activity?
*
If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
*
Has the taxpayer changed methods of operation to improve profitability?
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Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
*
Has the taxpayer made a profit in similar activities in the past?
*
Does the activity make a profit in some years?
*
Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity?
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.
If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.
Deductions for hobby activities are claimed as itemized deductions on Schedule A (Form 1040). These deductions must be taken in the following order and only to the extent stated in each of three categories:
*
Deductions that a taxpayer may take for personal as well as business activities, such as home mortgage interest and taxes, may be taken in full.
*
Deductions that don’t result in an adjustment to basis, such as advertising, insurance premiums and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.
*
Business deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.
Brokers must maintain a Separate Record for Each Beneficiary or Transaction (for example, DRE Form RE 4523). This record accounts for the funds received from, or for the account of, each beneficiary or each transaction and deposited to the trust fund bank account. These records are necessary for the broker to ascertain the total owed to each of the beneficiaries. The record should show in chronological sequence the following:
1. Date of deposit.
2. Amount of deposit.
3. Date of each related disbursement.
4. Check number of each related disbursement.
5. Amount of each related disbursement.
6. If applicable, dates and amounts of interest earned and credited to the account.
7. Balance after posting transactions on any date.
Trust funds may, at the request of the owner of the funds, be placed into an interest-bearing account at a bank or savings and loan association if the following requirements are met:
1. The account is in the name of the broker as trustee for the specified beneficiary or principal of a transaction or series of transactions.
2. All of the funds in the account are covered by insurance provided by an agency of the federal government.
3. The funds in the account are kept separate, distinct, and apart from funds belonging to the broker or to any other person for whom the broker holds funds in trust.
4. The broker discloses to the beneficiary of the funds the nature of the account, how interest will be calculated and paid under various circumstances, whether service charges will be paid to the depository and by whom, and the possible penalty for withdrawals.
5. No interest earned on the funds shall inure directly or indirectly to the benefit of the broker nor to any person licensed to the broker.
6. In an executor sale, lease, or loan transaction in which the broker accepts funds in trust to be applied to the purchase, lease, or loan, the parties to the contract shall have specified in the contract or by collateral written agreement the person to whom interest earned on the funds is to be paid or credited.
It should be noted that this would require the broker to maintain a separate bank account for each beneficiary who wishes to earn interest.
Strategic Goal 1: Improve Taxpayer Service
International tax law is extremely complex. Providing international taxpayers and taxpayers in the U.S. territories (American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands) with assistance and clear and accurate information before they file their tax returns helps avoid unintentional errors and reduces unnecessary contacts afterwards. To achieve this, we will improve service options for international/U.S. territories taxpayers, enhance outreach, provide tools for earlier certainty on complex issues, and strive for burden reduction in the international/U.S. territories tax law arena.
Strategic Initiatives:
1. Enhance customer service options for international/U.S. territories taxpayers to encourage voluntary compliance with complex international/U.S. territories tax laws.
2. Deliver targeted education and outreach to taxpayers with international/U.S. territories transactions and enhance our partnership with tax practitioners involved in the preparation of international/U.S. territories returns.
3. Explore opportunities for expanded e-filing of international/U.S. territories forms.
4. Identify opportunities for burden reduction through forms revisions, legislative proposals, and procedural changes.
5. Provide earlier certainty to taxpayers on international/U.S. territories tax issues through pre-filing tools and achieving greater currency of audits.
6. Contribute to identifying and developing guidance on priority international issues.
Strategic Goal 2: Enhance Enforcement of Tax Laws
As globalization continues to grow, tax planning is increasingly focused on minimizing the worldwide effective tax rate. In this context, international/U.S. territories non-compliance is a significant area of concern and focus. We are challenged by a lack of information reporting on many cross-border transactions. The ease of utilizing complex international structures and cross-border transactions results in constantly evolving compliance issues. To properly identify, address, and pursue such emerging issues, we will strengthen reporting requirements; enhance IRS access to international data; ensure adherence to professional standards by tax professionals; and, increase industry and global issue focus by aligning resources to cases and issues with the highest compliance risk.
Strategic Initiatives:
1. Improve examination coverage, identify emerging compliance issues, and increase issue specialization to address complex transactions.
2. Strengthen our information reporting and withholding systems to ensure we receive the appropriate information and use it effectively in our compliance and withholding tax efforts.
3. Improve cooperation with treaty partners to identify and address inappropriate tax arbitrage and abusive schemes, achieve greater transparency on cross-border transactions, and identify and address process improvements in the mutual agreement program.
4. Encourage tax professionals to adhere to professional standards and provide effective oversight to ensure accountability of professional responsibilities.
5. Detect and deter financial criminal activity and abusive transactions that involve offshore entities and cross border transactions.
Strategic Goal 3: Modernize the IRS through its People, Processes and Technology
As the flow of trade and capital moves more easily across borders, the global marketplace is developing at an ever increasing rate. The fast pace of change in the global economy requires an equally fast pace of change within our organization. We must strategically manage resources, associated business processes, and technology systems to effectively and efficiently meet international service and enforcement missions. To achieve this, we will improve our resource capabilities to leverage international expertise throughout the IRS and modernize information systems to improve service and enforcement.
Strategic Initiatives:
1. Identify workforce skills needed to address emerging international/U.S. territories issues and develop a training plan to address the needed skills.
2. Provide IRS employees the tools needed to accurately and timely respond to taxpayer inquiries.
3. Improve the systems for capturing and utilizing information reported by treaty partners to enhance compliance of U.S. taxpayers.
4. Identify opportunities to improve international/U.S. territories forms and the related processing systems to ensure appropriate information is available for risk assessment and issue identification.
5. Assess system and resources devoted to referrals of international/U.S. territories issues to ensure high risk issues are addressed in a timely manner.
6. Identify and develop baselines and measures to better assess the international/U.S. territories tax gap and our progress in reducing it.