Since 2016, Revenue NSW has implemented rules to make buying a property in NSW more costly for foreigners. In addition to the costs associated with Foreign Investment Review Board applications, foreign buyers of NSW property are subjected to both stamp duty and land tax surcharge. However, in February 2023, Revenue NSW confirmed via a release, conceding that the Surcharge Stamp duty and foreign owner surcharge land tax provisions are inconsistent with international tax treaties entered into by the Federal Government with certain countries; individuals of those nationalities when purchasing residential property or who own residential properties do not have to pay surcharge stamp duty and surcharge land tax.
Stamp duty and Land tax
In short, Stamp Duty, also known as transfer duty, is a tax enforced on the buyer when buying a property, a vacant land, a commercial property, or a business. Subject to certain exceptions such as first-home buyer assistance scheme, transfer due to break down of marriage or de facto relationship, or being a beneficiary of a deceased estate, the general position is that a person obtaining an interest in a real property is liable to pay the duty.
Land Tax is a tax levied for land ownership. Land tax is calculated on the total value of taxable land above the land tax threshold (starting from $969,000.00 as at the 2023). The land value is not the purchase price of the property but rather a value determined by the NSW Government Valuer General, based on the value of the land on which the property sits.
For foreign purchasers, a stamp duty surcharge is an charge payable in addition to the normal stamp duty. The stamp duty surcharge was originally 4% in 2016 but as at 2023, it has risen to 8% of the purchase price.
If you are a foreign person who owns residential land in NSW you must also pay land tax surcharge, regardless of whether you need to pay land tax. A land tax surcharge is payable each calendar year. The surcharge is assessed in relation to each parcel of land and proportional to ownership.
Eg: John Zhang is a Chinese National who purchased a new townhouse in Seaforth this year. John ordinarily lives in China and does not have permanent residency in Australia. The purchase price was $1,000,000.00. and the property land value is $500,000.00.
In this case, John needs to pay a normal stamp duty of around $39,735.00. in stamp duty. John will also need to pay $80,000.00 (1,000,000.00 x 8%) in surcharge stamp duty.
John’s property is not liable for land tax as his property does not exceed the 2023 land tax threshold ($969,000.00). However, John is still liable to pay a land tax surcharge, which is the total residential land value times 4% ($500,000.00 x 4%), which equals to $20,000.00 for the tax year of 2023.
Treaty and implications
On 21 February 2023, Revenue NSW determined that the above surcharge stamp duty and land tax provisions are inconsistent with Australia’s international tax treaties with New Zealand, Finland Germany and South Africa. Individuals that are citizens of those countries were no longer required to pay surcharge stamp duty and surcharge land tax in respect of residential property in NSW.
On 29 May 2023, Revenue NSW added Japan, India, Norway and Switzerland as exempted nations, and nationals from those countries will not need to pay surcharge stamp duty and land tax surcharge.
The refund period has now been extended . Refunds may be available for purchasers/transferees, and landowners, from the nations concerned who paid surcharge purchaser duty or surcharge land tax on or after 1 January 2021 (previously 1 July 2021).
The rationale for this decision was due to certain international tax duties with Australia containing non-discrimination provisions, meaning that the nationals of those countries, party to the treaty, cannot be subjected to tax in Australia which is more burdensome than that imposed on an Australian resident and citizen.
Revenue NSW's decision means if John from our above example, was a citizen of South Africa, he will not need to pay a stamp duty surcharge when purchasing the property nor a land tax surcharge each year.
Nevertheless, foreign buyers from the exempted countries need to keep in mind that they still need to lodge the FIRB applications before they are eligible to buy properties in Australia and that the position of other states and territories on the issue of foreign purchaser stamp duty and land tax surcharge may be different.
If you are looking to purchase a property in Australia, or have purchased a property but wish to obtain a refund, please contact our office so that one of our experienced property lawyers may assist you with your queries.
*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*
Partner | Public Notary
Queensland - Property Law Reform 2023 - Seller Disclosure and Impact on Leases
On 25 October 2023, the Queensland Parliament passed the Property Law Act 2023 (New Act), a significant legislative overhaul aimed at updating the property laws in Queensland.
VICTORIAN 2023-2024 BUDGET: Key Changes and What You Need to Know
The Victorian 2023-2024 budget has brought forth substantial changes in its tax obligations and thresholds, heralding a new fiscal landscape for taxpayers in the state.
Queensland State Budget 2023-2024: An Overview
The Treasurer and Minister for Trade and Investment, the Honourable Cameron Dick MP unveiled the Queensland State Budget that addressed the cost of living, delivery of services in health, housing and community safety for Queenslanders.
NSW BUDGET 2023 – 2024: Key changes and what you need to know
In NSW, if you are acquiring more than 50% of a private company or a unit trust that holds land (directly or indirectly) over the value of $2 million, landholder tax is applicable to the acquirer.