NSW Surcharge Land Tax | Is it fair?

What is it?

The NSW foreign owner surcharge land tax (“surcharge land tax”) applies to residential land in NSW owned by a ‘foreign person’.  It is in addition to any regular land tax that may apply and is currently imposed at the rate of 4% of taxable land value. It applies on an annual basis to residential land owned as at 31 December of the previous year.

Who is a ‘foreign person’?

A person is generally considered as a ‘foreign person’, unless:

• they are an Australian citizen, or
• they are a permanent resident of Australia and have lived in Australia for at least 200 days in the previous calendar year.

Revenue NSW has also accepted the position that, due to international tax agreements entered into by the Australian federal government, citizens of New Zealand, South Africa, Germany, Finland, Japan, Norway, India and Switzerland are exempt from paying the surcharge land tax. [Update: On 8 April 2024, the Treasury Laws Amendment (Foreign Investment) Act 2024 received royal assent and commenced. This act clarifies that the federal international tax agreements do not affect State duties and land taxes. As a result, the position adopted by Revenue NSW in 2023 that citizens from these 8 countries are exempt from surcharge land tax has now been reversed.]

How is it fair?

Simply put, it isn’t. Some have criticised the tax as unconstitutional in its discriminatory application to certain foreigners only.

Unfair as its application may be, however, assessments of the surcharge land tax remain a reality for landowners, as Revenue NSW remains active in identifying relevant taxpayers and issuing land tax assessments (including revoking exemptions previously granted, see further below).

This includes permanent resident visa landowners who have been in Australia for many years but have not taken up Australian citizenship, and fail to remain in the country for 200 days during a year.

Exemption – Intended Principal Place of Residence

There is an exemption to the surcharge for the following visa holders regarding their principal place of residence:

• Permanent visa holders;
• Partner (provisional) visa holders (subclass 309 or 820); and
• Retirement visa holders (subclass 410 or 405).

In order to be eligible for the exemption, these visa holders must intend to use and occupy their property for a continuous period of 200 days or more during the year that the exemption is granted. Further, they must apply to Revenue NSW for the exemption by 31 March.  For land tax assessments being received in 2024, this would be by 31 March 2024.

The Issue – 200 Continuous Days

In practice, the main contentious issue that we’re encountering is not the application of the exemption by taxpayers by the deadline.

Rather, it relates to the requirement that the individual must physically remain in Australia for a continuous period of 200 days during the land tax year.  Revenue NSW has been revoking exemptions granted in 2023 on the basis that this strict requirement has not been met, even where the individual has otherwise been in Australia for 200 days in aggregate during the year.  This is harsh and has led to some taxpayers receiving unexpected land tax assessments that are often substantial amounts.

There is a discretion for Revenue NSW to waive the rigid 200 days requirement in circumstances where absences are ‘exceptional’ and ‘brief’.  Whether the discretion is exercised is assessed on a case-by-case basis. Objections to exception revocations seeking this discretion must be made within 60 days of the date of assessment.

Need further help?

If you require assistance with a land tax assessment, please contact King Tan.