NSW Foreign Owner Land Tax Surcharge

Hi All,

My wife (UK Citizen on a spousal visa) and I (NZ Citizen with right to remain in Australia indefinitely on the special category visa) bought a house in 2013 as our PPOR. We applied for permanent residency this year as we have two Australian born kids and our life is here (we both work and pay plenty of taxes to the ATO, etc). Until 2016 there was no path for us to obtain PR as my skillset was not on the skills wanted listed (I work in finance), however I appreciate we should have jumped on the PR application sooner when Home Affairs provided a pathway for NZ'ers in 2016. The property is jointly owned and we have lived in it the whole time, renovating it as we go.

About a month after applying for PR my wife received a notice from NSW Revenue asking her to lodge in relation to our PPOR. Long story short, assessment comes back and she owes $58k according to NSW revenue. My question is: (i) whether there are any exemptions available to us; and (ii) is there anything that can be done to minimise liability going forward over the next 2-3 years while we wait for PR to be approved (current wait time is 29 months for 75% for 75% of applications apparently). Looks like we would risk stamp duty and/ or CGT if we changed to tenants in common with proportions changed.

My other questions is whether there any time limitations on NSW Revenue making an assessment. We weren't aware of the legislative change (poor excuse perhaps), my wife never received any prior assessments or requests to lodge in relation to the property (we would have clearly expedited the PR if she had), so five years worth of back taxes seems very punitive.

It seems to me that that there will be a lot of Australians (and NZ'ers) that are married to foreigners who will be caught unawares if this is a new aggressive approach that NSW Revenue are taking for PPOR.

Thanks in advance. Ben

 

This is something you need specific legal advice on - a solicitor.
Start off by looking at the definition of 'foreign person' in the duties and land tax acts.

 

Thanks Terry.

For the purposes of the acts, I am not a foreign person. My wife, however, is a foreign person given that the spousal via she holds must be renewed every five years (i.e. doesn't meet the requirement that "the individual's continued presence in Australia is not subject to any limitation as to time imposed by law".)

 

Without looking at the legislation you or your wife will have an issue I think

 

Thanks for the prompt reply. I might email you directly (I may as well run this to ground).

 

The definition of foreign person includes a NZ citizen unless they applied for a relevant visa (444) OR permanent residency. Merely arriving on a flight from NZ poses a problem for kiwi's. I know of many who have been here decades and this issue (and deportation for minor criminal offences) is something that concerns them. Purchase duty is now a further issue. The duty issue occurred after acquisition but the land tax has crept in since 2017 with a more recent (2018) increase to 2% when it was .75% initially. Also consider the impact of the Foreign Investment Review Board rules when obtaining legal advice. The FIRB conditions may impose a sale if two persons own a property as their home and they leave Australia.

The PPOR exemption doesnt apply to the surcharge which has no threshold. The surcharge is also applied to EACH owner rather than a single joint assessment so one of two owners can be assessed. Or both. The PPOR exemption avoids further primary land tax however. A permanent residency approval cant be backdated.

 

Thanks Paul. So, I think what you're saying in essence is that I am royally screwed!!

I am on the 444 visa but also aware that this doesn't protect against things like deportation for even minor criminal offences (though I am not planning any criminal enterprises). At this stage the application of the Foreign Owner Land Surcharge is only to my wife's 50% of our residence (which hurts more than enough). As you note, the fact that we own the property jointly doesn't seem to provide us with any relief under the legislation.

The additional sting in the tail will be continuing to accrue this liability (with associated annual cash outflow) while we sit there for the next two years waiting for our PR to be approved. As you highlight, it also binds us to the property as a sale (particularly if we were living outside Australia) would crystallise other liabilities. Fortunately we have no plans to leave.

I think the implications of this are pretty wide. For example, my American work colleague who married to an Australian is likely to be in the same boat given he hasn't submitted his PR yet.

 

OK if you arrived on 444 then only your wife's share is not compliant and subject to surcharge. Heaps of kiwis dont obtain the 444 and then its even worse. Foreign purchasers and non-citizens should NEVER buy an interest in Australian property without legal advice. The FIRB and stamp duty surcharges and land tax etc are all examples.

FIRBs basic warning is Foreign persons generally require foreign investment approval before acquiring an interest in residential land, regardless of its value.
Land investments | Foreign Investment Review Board
https://firb.gov.au/sites/firb.gov.au/files/guidance-notes/G06Residentialland_0.pdf especially Part E !!!Note that temp residents cannot buy investment property unless exempt. Note the exemption must be applied for if it is existing resi premises. Its not automatic. Its a common breach. And compulsory sale can be imposed.

You should seek legal advice on the merits of changing ownership to 100% your name vs 50/50. This will trigger 50% stamp duty but weighed against the land tax issue it could be practical. As you both lived in the property there is no CGT impact I suspect.

 

Hi BenB, i am on the same boat. however wrt to your comment

"For the purposes of the acts, I am not a foreign person. My wife, however, is a foreign person given that the spousal via she holds must be renewed every five years (i.e. doesn't meet the requirement that "the individual's continued presence in Australia is not subject to any limitation as to time imposed by law".)"

Please refer to the below link for the definition of ordinarily resident in Australia:G009

"An individual (who is not an Australian citizen - see paragraph 7) is taken to be ordinarily resident in Australia at a particular time if:

1. the person has actually been in Australia during 200 or more days of the preceding 12 month period; and
   
2. at that time:
   
   • the person is in Australia and the person's continued presence in Australia is not subject to any limitation as to time imposed by law (see paragraphs 11-14); or
     
   • the person is not in Australia, but, immediately before the person's most recent departure from Australia, the person's continued presence in Australia was not subject to any limitation as to time imposed by law."
     

If you read further down it clearly states:

A person who holds a Partner (Provisional) visa (subclass 309 or 820) will be treated in the same way as permanent resident visa holders. The 200 day requirement will need to be satisfied.

Any thoughts?

 

Is she on a subclass 461 visa?

 

In 99% of cases (unless there are criminal convictions) this is granted upon arrival, most kiwis just don't know they have it.

 

Yes, I think it is the Subclass 461 visa she holds.

 

Hi AliZ,

Unfortunately she doesn't hold either the 309 or 820 visas (stupidly she went the cheap and quick option of the 461 visa without understanding the consequences). The 309 and 820 are basically partner provisional visas where you have permanent residency underway (cost about $7.7k each and have a similar wait time to PR). They don't impose a time limitation (the visas stay in place until you get PR or until the visa is withdrawn) so they get an exemption under the legislation.

 

Hi BenB,

That is very unfortunate. In my case, my wife and I made an error whilst submitting the delcration (honest mistake) and even submitted the correct ID documents and visas and no one picked it up! Not even our solicitor (will come to that later). The worst part is that my wife was on a work visa on the transaction date and it exactly one day after the settlement date that her spouse visa 820 was issued. NSW revenue did indicate that if her status had changed on or before the settlement date they will consider but we are off by 24 hours (Murphys Law)!!!

I am not sure how much blame is our solicitor to take as at the end of the day he was vetting the documents on our behalf and was liaising with the third parties at the time?

 

Hi BenB,

Just to clarify, is your query related to duty surcharge or Foreign owner surcharge Land tax?

Kind regards

Ali

 

Thanks is super unfortunate for you. It's all about revenue raising and logic/ what is morally right goes out the window (my wife is certainly a permanent tax resident for ATO tax purposes but not a permanent resident for NSW Revenue land tax purposes).

I have no legal qualifications so can't opine on your solicitor and whether he was at fault. I am sympathetic though.

My wife's issue is in relation to the foreign owner land tax surcharge that accrues annually. We bought the property in 2013 so avoided the additional stamp duty due to foreign ownership.

 

These are 2 different concepts and different laws. Revenue is state legislation and tax is commonwealth. neither match up to the immigration laws shich is also commonwealth.

 

Thanks Terry. I totally get it, but it doesn't soften the blow. Mr Govt Tax Man (be it State or Federal) sets the rules to eek every cent out of the working man or women while ignoring corporates playing games and paying no tax with transfer pricing and other loopholes.

I think it's also interesting that a Federal Government Agency (Home Affairs) seems to be working hand in glove with a State agency (NSW Revenue) to milk joe public. Particularly love that they can tax retrospectively back 5 years with no prior notice, assessment or request to lodge.

 

Its the parliaments that make the laws, the relevant departments can only milk people to the extent that the laws allow it.

The limitations act allows them to chase liabilities from the past, but you must have been liable at that point so it is not retrospective taxation, it is collecting money you should have paid but didn't whether deliberate or not.

A few years ago QLD change the land tax laws and were treating Aussie citizens who were not here 6 months a year as absentees and charging them high penalties, but successful lobbying had them change the law on this.

 

I am being (at least partly) facetious and appreciate the law is made in parliament. And yes, if you read the law to the letter then my wife was liable on the calculation dates, albeit she never received any notification or request to lodge. If she had received notification we could have done something about it to minimise that liability.

I reckon that there will be a lot of Australians out there married to foreigners that are sitting unknowingly on this tax bomb. It has the potential to bankrupt some people. Joe Public doesn't typically read tax law in their downtime if they only have a PPOR.

Your example of QLD taxing Australians for being absentee from their properties for 6 months is another example of tax legislation that is morally wrong in my opinion.