NSW backflips on duty and land tax surcharges for certain foreign citizens

What we know

Certain international tax treaties entered into by Australia contain a non-discrimination provision. In general terms, these non-discrimination provisions provide that a national of the other country that is a party to the treaty, shall not be subjected in Australia to any tax which is more burdensome than that imposed on an Australian resident. This is typically limited to the taxes expressly subject to the treaty (most commonly, income tax and fringe benefits tax).

However, the treaties entered into between Australia and each of New Zealand, Finland, Germany and South Africa, go further. They provide that the non-discrimination provision applies to ‘taxes of every kind and description’ (or similar wording) imposed by Australia – relevantly including land tax and duty.

As a result, effective immediately, individual citizens of these specific countries that purchase or own New South Wales residential-related property or land in their own right will no longer be required to pay surcharge purchaser duty or foreign owner surcharge land tax. Non-individuals (that is, corporations, trusts or partnerships) may also be affected by this change if they are affiliated with these countries.

Importantly, refunds may be available for eligible purchasers and landowners who paid surcharge purchaser duty or foreign owner surcharge land tax on or after 1 July 2021.

What we don’t know (yet)

Revenue NSW has made no comment on whether citizens of other treaty countries – particularly those with broader non-discrimination provisions, such as India – may be affected. It will also be interesting to see what flow-on effect this has on Australia’s tax treaty negotiation processes.

While this is an important development, there is no word yet on how Revenue NSW will practically determine whether a purchaser or landowner is covered by a relevant international tax treaty, as there is no ‘register’ of these entities and coverage must be determined on a case-by-case basis. Revenue NSW has stated they will proactively identify customers and transactions that may be eligible for the removal of the surcharges, and contact impacted taxpayers directly.

At the time of writing, there is also no word yet on whether the other states and territories will follow suit, although we expect they will shortly, although the Victorian State Revenue Office has announced that they are actively considering the issue. The following states and territories currently have surcharge purchaser duty and foreign owner surcharge land tax rules for foreign persons.