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NSW foreign tax surcharges on the rocks – and more to follow?

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On 21 February 2023, Revenue NSW announced a significant change in policy.

NSW will no longer impose surcharge duty and land tax on “foreign” owners of land from four specified countries, effective immediately. Affected owners may be eligible for a refund. For the time being, the 8% duty surcharge and 4% land tax surcharge will continue to be applied for purchasers and owners from other countries.

Read the announcement here.

Which countries are affected?

The announcement applies to nationals of New Zealand, Finland, South Africa and Germany.  Australia’s tax treaties with those countries include a non-discrimination article which prevents Australia from imposing tax on nationals of those states that is more burdensome than the tax imposed on Australians in the same position. Those articles specifically apply to “taxes of every kind and description” or those imposed by “political subdivisions” of Australia, such as the states. 

There are other treaties which include non-discrimination articles for taxes of “political subdivisions” (e.g., Japan and Norway) or simply taxes “of every kind and description” (e.g., India and Switzerland). At this stage, Revenue NSW’s view is that the surcharge still applies to these countries. The reason for that approach is unclear and is likely to be the subject of debate in the near future.

Can I apply Revenue NSW's new approach?

You can rely on Revenue NSW's new approach if you are a citizen of one of the specified countries or an entity, such as a company or trust. The criteria under which entities qualify, remains unclear. For example, would an Australian entity that is “foreign” only because of underlying interests held by individuals of one of the specified countries still be charged the surcharge?

Can I get a refund?

Revenue NSW will refund surcharge duty and land tax to eligible owners who paid the surcharge on or after 1 July 2021. They will also refund any interest and penalties paid in respect of the surcharge. However, Revenue NSW’s position is not to pay interest to a taxpayer for the time they have been out of pocket.  Further, there is no right of objection against a decision not to pay a refund. Taxpayers still have the option of objecting against the original assessment, although that is likely to be out of time and may involve a review in the Civil and Administrative Tribunal. 

Revenue NSW will begin a process of contacting effected taxpayers. See the FAQs here.

What about my amended trust deed?

Many trusts in NSW (and in other states) have now been amended to exclude “foreign persons” as beneficiaries as a way of dealing with these types of surcharges. In NSW, all discretionary trusts had to be irrevocably amended to comply with a rule which otherwise deemed them to be a foreign trust.  

Depending on the drafting of the deed, this announcement is unlikely to change the effect of those exclusions without legislative amendment. Trustees should continue to monitor changes in the way Revenue NSW and other state revenue authorities approach these surcharges and determine with their specialist tax and commercial advisers whether their deeds remain fit for purpose.   

Are the other states doing the same thing?

At this point, the other states and territories have not announced that they are following NSW’s lead. Victoria has issued a short statement acknowledging NSW’s announcement and that it is “considering the implications”.

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