Removal of NSW surcharge provisions for foreign persons

UPDATE: The article below identified the removal of NSW surcharge provisions for citizens of New Zealand, Finland, Germany and South Africa. After publication, the NSW government determined that citizens of India, Norway, Japan and Switzerland were also not subject to NSW surcharge purchaser duty due to the application of international tax treaties.

Since then, changes to federal legislation means that these citizens may now need to pay NSW surcharge purchaser duty if they enter into an agreement to acquire residential property in NSW on or after 8 April 2024.

Surcharge land tax may also be payable on future land tax assessments for residential land they own in NSW.

The NSW government has recently announced the removal of surcharge provisions for foreign persons from New Zealand, Finland, Germany and South Africa.

What are the surcharges referred to in the announcement?

The NSW government introduced surcharges on transfer duties and land tax for foreign persons in June 2016 as part of the 2016-2017 NSW State Budget. At the time, the surcharges were expected to generate $1 billion in revenue over a four year period.

The NSW surcharges apply to a ‘foreign person’, which excludes Australian citizens (including those citizens who are living overseas).

The surcharges also apply to a trustee of a trust if any beneficiary or potential beneficiary is an individual not ordinarily resident in Australia (excluding Australian citizens), a foreign corporation or a foreign government. This led to many trustees amending trust deeds to exclude non-Australian citizens from benefiting from the relevant trust.

What is the change?

Revenue NSW recently revealed the surcharge provisions are inconsistent with some Double Tax Agreements (DTAs). As a result, the surcharges will no longer apply to foreign persons from New Zealand, Finland, Germany and South Africa, with refunds available for payments made on or after 1 July 2021.

How did this come about?

The issue arises where a DTA with a particular country contains a non-discrimination clause that applies to all taxes, i.e., not only federal taxes. Article 2 of most DTAs define the taxes covered by the DTA. That is, Article 2 specifies the taxes that are subject to the DTA and may specifically exclude other taxes such as state taxes and duties.

However, DTAs often contain a non-discrimination clause to ensure the taxes imposed on non-residents are no more burdensome than those imposed on residents in the same circumstances. That is, the clause prevents additional taxes being imposed on foreign residents as a result of their residence status. Usually this is limited to the taxes covered by the DTA, but some agreements contain a non-discrimination clause that extends its application to taxes of every kind and description, i.e., this is not limited to only taxes covered by in Article 2.

For example, the Australian taxes included in Article 2 of the Australia-Germany DTA are income tax, FBT and resource rent taxes. However, paragraph 5 of the non-discrimination article in the German DTA states:

The provisions of this Article shall, notwithstanding the provisions of Article 2, apply to taxes of every kind and description (emphasis added).

Therefore, the Australia-Germany DTA will prevent any taxes being imposed based on the nationality of a person.

As a result of these types of non-discrimination clause, Revenue NSW has determined it is unable to impose the surcharges in respect of the DTAs included in its announcement.

Refund of surcharges

Revenue NSW has confirmed that eligible individuals may be entitled to receive a refund of foreign surcharge purchaser duty and surcharge land tax. Similarly, the trustee of a trust with interests held by a person from New Zealand, Finland, Germany or South Africa, may also be eligible for a refund.

According to the Revenue NSW website, refunds will only be available for payments made from 1 July 2021.

Other jurisdictions

Other States and the ACT impose either the surcharge purchaser duty and / or the foreign owner surcharge land tax. The provisions are generally similar to the NSW provisions.

In light of the NSW position, other States and the ACT will need to reconsider the imposition of foreign surcharges. Interestingly, on 15 March 2023, the Victorian SRO published an announcement that the Victorian position has not changed and the SRO will continue to apply the surcharges as they currently stand. Given the difference in approach between NSW and Victoria, we watch with interest to see what the other States and ACT decide.

Next steps

Advisors with clients that are non-Australian citizens that have paid surcharges or who are expecting to pay surcharges in the near future should pay close attention to further announcements by the relevant Revenue Office including Revenue NSW in the event additional countries are added to the above list.

Affected persons from the relevant countries will be wanting to obtain refunds of surcharges already paid. According to Revenue NSW website, it will be proactively identifying customers and transactions that may be eligible for the removal of the surcharges. No further detail has been provided on how Revenue NSW will do this. We recommend that affected persons who are not contacted in the near future, to approach Revenue NSW for a refund request.


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Acknowledgment to Kay Kim for her contribution to this article.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. Webb Martin Consulting Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.

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