Tax Tip 469: NSW Land Tax Surcharge and Surcharge Purchaser Duty for Citizens of New Zealand, Finlan

Did you know that foreign persons get slugged extra stamp duty when they purchase a property and extra land tax as well. In NSW this can be double the normal rate.



For some reason Revenue NSW have just discovered that the surcharge should not be applied to citizens of the following countries:

New Zealand, Finland, Germany and South Africa



This is because of the double taxation agreement that Australia has with these countries.

If you are a citizen of one of these countries and have paid stamp duty or land tax in NSW after 1 July 2021 you might also be entitled to a refund.

Check out the announcement

Surcharge purchaser duty and surcharge land tax - international tax treaties

 

NZ was always easier to work around. Through a issue with implied visas issued to cross borders on arrival

 

Finally this issue has been publicly acknowledged by NSW Revenue. The problem has existed ever since surcharge land tax and duty were introduced in 2016.

The legal argument starts with articles in the tax treaties:

Article 1: This Agreement shall apply to persons who are residents of one or both of the Contacting States

Article 2: For the purposes of Article 23, the taxes to which this Agreement shall apply are taxes of every kind and description imposed on behalf of the Contracting States, or their political subdivisions or local authorities.

Article 23: Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States.

Australian citizens are exempt from the tax surcharges. However the tax treaty says that citizens of the other country should not be taxed more heavily. The tax surcharges are doing just that.

The announcement by the NSW government does not go far enough. Some countries have been left out (e.g. Norway). Why the 2021 cut-off? The issue existed before that.

I don't think we have heard the last on this topic!

 

It is pretty amazing that this has only just happened - I mean the acknowledgement.that it should not have applied.

 

It takes time for such complex issues to be resolved since its not a law but it is a Commonwealth Treaty which is involved. This affects land tax surcharge AND purchaser duty.

Surcharge purchaser duty and surcharge land tax - international tax treaties - General info
More specific practitioner guidadnace has also been issued. The link at the base of the above may assist

There is some legal issues which arises where the issue wasnt "known"and determined before 1 July 21. Hence that isnt refundable. The assessments out of time to object & cancel I suspect. There has been no explanation why only some treaties are considered to be impacted and it is not more broad.

I question the impact on other states ?
And the fix is exceptionally complex as it requires electronic duties support. Usually a solicitor or conveyancer.

 

The reason is simple: some treaties include the non-discrimination clause, some don't. Some also specifically extend the non-discrimination to political sub-divisions and local authorities.
These treaties are based on the OECD model. The model has evolved over time. So basically any new or updated treaty since about 2006 will have the non-discrimination and extension to political sub-divisions text.

The issue is actually much broader than treaties with specific countries. Australia is a member of the OECD, and has committed to the principles of the OECD. One principle is that you cannot have tax discrimination based on citizenship. So if you start taxing citizens of certain countries differently even though their circumstances are exactly the same, only the citizenship is different, you have a problem.

Also take note of section 109 of the Australian constitution:
When a law of a State is inconsistent with a law of the Commonwealth, the latter shall prevail, and the former shall, to the extent of the inconsistency, be invalid.
These tax treaties form part of commonwealth law. So all these citizenship based surcharges by all states are in fact invalid.

 

I understand the OECD model which may not prevail over other law.. It isnt a law as such but may limit law. The constitution only limits our law eg state v commonwealth powers. The constitution usually limits state v commonwealth powers not rights. s109 has no relevance unless threre is dual tax righ limited to commonwealth v state. The constitution does not mention citizenship as quoted. OECD isnt a right. Nor is citizenship

 

I will be watching this space intently. My wife who is a UK national and I (NZ'er) got our PR through in January this year after a near two year wait (frustratingly 3 weeks after the 31 December calculation date) for the 2023 year. Given the UK citizens are not among those exempted, it looks like we're about to be thwacked again on her half of the property. Only we get hit at the higher rate of 4% now!

I think it's also pretty rich of NSW Revenue to admit they got it wrong in relation to the exempted foreign owners and respective tax treaties and then limit the tax refunds to 12 months for those nationals.

 

A foreign person should never buy property without advice.

 

When did you qualify for PR, when did you apply and when was it actually granted? If there has been an undue delay by the department of home affairs then NSW revenue will consider the situation. You shouldn't be hit for extra tax just because another government department has a backlog.

 

We applied for PR in February 2021 (satisfied the medical in April 2021, so I'm not sure if this is what starts the clock ticking), and received PR on or around 20th January 2023. The wait times for visas did blow out despite lower immigration into the country over the Covid period (I assume they were having staffing issues like everybody else).

 

That isnt how the law or the NSW ruling is written. A person at the tax event must meet the requirements. eg The NZ citizen will be OK under the new accepted approach. The UK person will need to meet the ordinarily resident test the NSW Govt use and without PR on the taxing days that could be a concern (purchase date / land tax date) . If NSW do consider it then it may be a risk. I havent seen any guidance in the Ruling that the Commissioner can reconsider the PR date. Para 14 could be an exception which allow a partner.....A UK arrival may hold a temp visa. of that class ? Some of these special visa are issued on arrival and not "given" and may exist without the arrival being aware. Then their % of the property could be subject to the 200 day rule... Its not straight fwd.

Ruling : G009

It would be interesting to hear if NSW Revenue do allow some lattitude.

 

News alert!
https://www.revenue.nsw.gov.au/news...um=oss&utm_source=psc&utm_campaign=202305_spd

On the 21 February 2023, Revenue NSW communicated that NSW surcharge provisions are inconsistent with a number of international tax treaties entered into by the Federal Government.

India, Japan, Norway and Switzerland have since been identified as additional nations that have international tax treaties with the Federal Government which may affect surcharge purchaser duty and surcharge land tax liability.

Individuals that are purchasing residential-related property or land in their own capacity will no longer be required to pay surcharge purchaser duty or surcharge land tax if they are a citizen of one of the following nations:

• New Zealand
• Finland
• Germany
• India
• Japan
• Norway
• Switzerland
• South Africa

Surcharge purchaser duty or surcharge land tax liability for non-individuals, such as corporations, trusts or partnerships that arises because of an entity’s affiliation with these nations, may also be affected by the international tax treaties.

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).

 

I believe NSW OSR are trying to determine for all parties that incurred land tax or stamp duty surcharges which nation is implicated. However all affected persons should initiate any issue asap. Interesting they have modified the applicable date for July 21 back to jan 21.

It also raises a issue for QLD property. Could absentee rules could be implicated for the above countries ? If so a legal challenge based on the NSW decision may be warranted. It may assist to have that drafted by a solictor. eg based on Article 23....which says in particular with respect to residence, are or may be subjected

Hmmm. That isnt quite true. I can think of the two counties who seek to tax its CITIZENS rather than apply the usual OECD model tax treaty which considers "tax residence". This can and does result in dual taxation isues and inst in itself aconcern. Its how that country frames its tax law. Dual taxation is merely a consideration but is not in itself banned. eg Will a tax credit be applied to alleviate the issue. There also may be misalignmnet in tax periods which is unfavourable.Or tax types eg No CGT in one nation and CGT in another. These two countries are Eritrea and the USA. The USA is the stand out amoung the G20 and major nations. Its not discrimination to frame a tax law on a legal principle. eg citizenship OR residency. We have loads of example in our tax law based on age (redundancy tax free elemnets stop at age pension age!!) or where a indirect impact affects a specific group eg women etc. A tax law can discriminate and not be discrimination. A good example would be to tax "Mexicans" (discrimination) where foreign persons applies broadly to exclude those not lawfully resident.

The land tax and duty is a interesting one as it seeks to limit OTHER taxes and so a state imposed ADDITIONAL tax is outside the scope of the agreement. eg Land tax itself is otherwise OK but a extra surcharge is not. I suspect this could be reason why QLD absentee tax is not presently covered.

If that is the case I would have concern NSW could later impose absentee rules in its place

 

I'll be cracking the champagne open if they ever add the United Kingdom to that list.

 

i was very surprised by this. in my case i had past 5yr surcharges lumped against me (due to wrong assessment they did in last) so i just paid decent sum of surcharge in May, only to.be told i can refund it.

notice how the refund applies to when payment was made and not to what year payment wad attributed to

 

Lucky you. What nationality?

 

i am japanese

but in the context of impacts to Syd investment prices, i think Indian nationality is largest beneficiary who may Impact purchase decisions. I have listed my Unit in North shore (good catchment area the Asians love) and i have seen drastic uptick of enquiry ftom Indian background buyers

 

There has been an important development in this area.

Treasury Laws Amendment (Foreign Investment) Act 2024
Treasury Laws Amendment (Foreign Investment) Bill 2024

New legislation has been passed making international tax treaties irrelevant for state revenue legislation,

NSW Revenue say as (april 2024):
Surcharge purchaser duty
It was previously identified that citizens of New Zealand, Finland, Germany, India, Japan, Norway, South Africa and Switzerland were not subject to surcharge purchaser duty due to international tax treaties.

Changes to federal law means that these citizens may now need to pay surcharge purchaser duty if they enter into an agreement to purchase residential property in NSW on or after 8 April 2024.

We will be providing further information related to the new legislation as it becomes available and encourage you to monitor this page for updates.

 

Foreign owner surcharge

seems land tax surcharge is also in scope. I'm not sure if this means they will retroscopically apply the rules and claim back the refund they given me.

So much for housing shortage and need investors. i'm getting sick of investing as foreigner even I've paid a very fair share of tax to both state and ATO. and upon exit they gonna sting me with yet another 45% of CGT gains.