Surcharge purchaser duty

The 2016 NSW Budget introduced a 4 per cent surcharge purchaser duty (surcharge) on the purchase of residential real estate by foreign persons from 21 June 2016. As a result of the 2017 Budget, for agreements entered into on or after 1 July 2017, the surcharge rate has increased from 4 per cent to 8 per cent. The surcharge is in addition to the duty payable on the purchase of residential property.

Foreign persons are no longer entitled to the 12 month deferral for the payment of stamp duty for off-the-plan purchases of residential property.

Surcharge is not only charged on an agreement or transfer of residential land.  It is also chargeable on certain dutiable transactions that are defined under Chapter 2A of the Duties Act.

Surcharge also applies to landholder transactions if there is a landholder liability and one or more of the properties owned by the landholder is classified residential and the purchaser is a foreign person who purchases shares or units in the landholder.

The purchaser/transferee declaration must be completed when buying or acquiring land in NSW.

Frequent questions

Surcharge for individuals

Information for Australian citizens

Australian citizens are not foreign persons, wherever they are located in the world. The 200 day rule does not apply to Australian citizens.

What is an individual foreign person?

In addition to Australian citizens, the following individuals are not foreign persons:

  1. Persons who meet the 200 day rule under section 5(a) of the Foreign Acquisitions and Takeovers (FAT) Act 2015 and are one of the following:

    1. Permanent visa holders
    2. New Zealand citizen who hold a special category visa (subclass 444)
    3. Partner (provisional) visa holders (subclass 309 or 820)
  2. Individual foreign persons are:

    1. The three types of individuals listed above, who do not meet the 200 day rule
    2. Temporary visa holders, who are persons who hold Australian temporary visas which are subject to limitation, such as an end date, and are considered to be foreign persons, regardless of whether they meet the 200 day rule under section 5(1)(a) of the FAT Act

Ordinarily resident

The following relates to being ordinarily resident.

200 day rule

An individual must be in Australia for 200 days or more within the 12 months immediately prior to the contract date.

The start and end date of each period of entry and exit from Australia will be counted towards the 200 days to determine if a person is ordinarily resident for the purposes of section 5(1)(a) of the Foreign Acquisitions and Takeovers (FAT) Act 2015.

Determining a person’s residency status

  1. Are all the purchasers/transferees Australian citizens at the time of first execution of the agreement?

    1. If yes, Surcharge is not payable.
    2. If no, go to 2.
  2. If the purchasers/transferees are not Australian citizens, are they New Zealand citizens who entered Australia on a special category visa?

    1. If yes, have they met the 200 day rule at section 5(1)(a) FAT Act?
      • If they meet the 200 day rule, surcharge is not payable.
    2. If yes and they do not meet the 200 day rule, surcharge is payable.
    3. If the person is not an Australian citizen or New Zealand citizen who entered into Australia on a special category visa, go to 3.
  3. If the person is not an Australian citizen or New Zealand citizen on a special category visa, what type of visa does the person hold at time of first execution of the transaction?

    1. Check on the Department of Immigration and Border Protection’s visa listing to determine if they have a permanent or temporary visa.
    2. Go to 4.
  4. Does the person hold a Permanent Resident visa or Partner (Provisional) visa (subclass 309 or 820)?

    1. If yes, and they have met the 200 day rule, surcharge is not payable.
    2. If yes, but they have not met the 200 day rule, surcharge is payable.
    3. If no, and the person holds a temporary visa, surcharge is payable.
    4. If no, and 1 and 2 above are not satisfied, surcharge is payable.

Exempt Permanent residents (including New Zealand citizens)

From 20 June 2017, permanent residents, including New Zealand citizens holding a special category visa (subclass 444), will be exempt from surcharge purchaser duty on their principal place of residence, if they occupy the home for a continuous period of 200 days within 12 months of the contract date.

The exemption will be granted if the person declares that they will complete the 200 day residence requirement.

Surcharge for corporations and trusts

Can a corporation or trust be a foreign person?

Yes, a corporation and a trustee of a trust can be a foreign person. This includes:

  • a corporation in which is an individual not ordinarily resident in Australia

  • a foreign corporation or a foreign government holds a substantial interest

  • a corporation in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or

  • the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or the trustee of a trust in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest; or

  • a foreign government; or

  • a general partner of a limited partnership where:

  • an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds at least 20 per cent in the limited partnership, or

  • two or more persons each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate interest of at least 40 per cent in the limited partnership.

What does substantial interest mean?

A person holds a substantial interest in an entity or trust, if:

  1. for an entity—the person holds an interest of at least 20 per cent in the entity; or
  2. for a trust (including a unit trust)—the person, together with any one or more associates, holds a beneficial interest in at least 20 per cent of the income or property of the trust.

What is an aggregate substantial interest?

Two or more persons hold an aggregate substantial interest in an entity or trust if:

  1. for an entity—the persons hold an aggregate interest of at least 40 per cent in the entity; or
  2. for a trust (including a unit trust)—the persons, together with any one or more associates of any of them hold, in the aggregate, beneficial interests in at least 40 per cent of the income or property of the trust.

When does a person hold an interest in a corporation?

A person holds an interest of a specified percentage in an entity if the person, alone or together with one or more associates of the person:

  1. controls that percentage of the voting power in the entity; or
  2. holds interests in that percentage of the issued securities in the entity; or
  3. would hold interests in that percentage of the issued securities in the entity if relevant options were exercised.

When does a person hold an interest in a trust?

An interest in a trust includes:

  1. a beneficial interest in the income or property of the trust; or
  2. an interest in a unit in a unit trust.

Who is an associate of a person?

The definition of an associate includes individuals, companies, partnerships, trusts and superannuation funds.

For more information see section 6 of the Foreign Acquisitions and Takeovers (FAT) Act 2015 of the Commonwealth and Guidance Note 32 of the Foreign Investment Review Board.

Is the trustee of a discretionary trust liable to the surcharge purchaser duty if a foreign person is a beneficiary of that trust?

Yes, from 21 June 2016, any time a trustee of a discretionary trust purchases residential property in NSW, and any beneficiary of that trust is a foreign person, the trustee may be liable to the surcharge purchaser duty if it does not adhere to the requirements under the Variation to Statute.

What is the variation to statute and when does it take effect?

The purpose of the variation to statute is to avoid discretionary trusts becoming inadvertently liable for surcharge purchaser duty and/or surcharge land tax. It takes effect from 21 June 2016 and will be in force until the legislation is amended.

How do I amend a trust deed so that the trustee of a discretionary trust is no longer a foreign person?

Amendments to a trust deed must prevent potential discretionary beneficiaries that are foreign persons from receiving distributions as to income and/or capital under the trust.

Should the trust deed contain named beneficiaries who are foreign persons, such beneficiaries must be removed from the trust deed as beneficiaries. Trust deeds that do not remove named beneficiaries will be liable to surcharge purchaser duty and/or surcharge land tax. It is not sufficient that named beneficiaries are merely prevented from receiving distributions, such as through a general clause excluding foreign persons from being beneficiaries.

Any amendments to the trust deed must also be irrevocable.

Will I need to pay duty if I amend my trust deed?

If the variation is or includes a declaration of trust, the variation will be liable to duty on the unencumbered value of the dutiable property at the date of the declaration, without any deduction for liabilities of the trust.

In the case of a discretionary trust over dutiable property, an assignment of the interest of a taker in default will be a dutiable transaction over dutiable property, and will be liable to duty on the greater of the consideration for the transfer and the unencumbered value of the 'dutiable property'.

The following variations to discretionary trusts are not dutiable transactions over dutiable property, and will not be liable to duty:

  • a variation that adds or deletes a beneficiary who is a taker in default;
  • a variation that adds or deletes a beneficiary who are discretionary objects;
  • a variation that varies the interests inter se of beneficiaries without altering the identity of beneficiaries; and
  • a variation that merely inserts or amends administrative powers without affecting the interests (if any) of the beneficiaries in the trust property.

For more details, see Revenue Ruling DUT 017.

Why do I have to pay surcharge purchaser duty if I never intend to distribute income or capital to the foreign persons who are beneficiaries of my discretionary trust?

It is irrelevant that a trustee may never exercise discretion to distribute income and/or capital to a foreign person. For a discretionary trust, each beneficiary to whom the trustee has discretion to distribute the income or property is deemed to have the maximum percentage interest in the income or property that the trustee may exercise discretion to distribute to them.

Can I get a refund for surcharge purchaser duty if I have now amended my trust deed to exclude foreign persons as beneficiaries?

Yes. You may apply for a reassessment and refund of surcharge purchaser duty paid in respect of a dutiable transaction entered into on or after 21 June 2016 if you have now amended the trust deed to exclude foreign persons as beneficiaries.

How long do I have to apply for a refund of the surcharge purchaser duty I have already paid?

The Chief Commissioner will accept applications for reassessment up to six months after the date of legislative amendment.

Am I liable to the surcharge purchaser duty if I inherit a property under a deceased estate?

No, the surcharge purchaser duty will not be payable unless the trusts under the will are varied under an agreement made between the foreign beneficiary and one or more of the other beneficiaries. In that case surcharge purchaser duty will be payable on the portion of the property to which the foreign beneficiary did not have an entitlement arising under the trusts contained in the will or arising on intestacy.

Surcharge (General)

Purchaser/Transferee Declaration

The Purchaser/Transferee Declaration (Declaration) – ODA 076 I (individuals) or ODA 076 NI (non-individuals) - serves the following purposes:

  • Surcharge purchaser duty

    A person acquiring an interest in residential land in NSW must complete a Declaration and, on request, provide the supporting evidence to Revenue NSW (section 16A Duties Act).

  • Commonwealth Reporting Requirements (CRR)

    A person acquiring an interest in land in NSW, and lodging on or after 1 July 2016, must fully complete a Declaration and, on request, provide the supporting evidence to Revenue NSW.

For both surcharge and the CRR, on request, the person must provide both the Declaration and all the supporting evidence. If the purchaser declares that he/she is ordinarily resident, they must provide:

  • a certified copy of their Visa Grant Notice
  • a certified copy of their International Movement Record
  • a certified copy of their passport.

When is the duty payable?

Surcharge duty must be paid within three months of the liability date, being the date of first execution of the dutiable transaction, e.g. contract date.

Mixed use land

If the residential land is used for purposes other than residential, the duty is only calculated on the residential component.

Refunds

Exemptions and concessions

Some transactions that are exempt from duty under Chapter 2, section 104ZK of the Duties Act are still liable for Surcharge.

What if certain permanent residents do not meet the ordinarily resident requirements?

For transactions entered into on or after 20 June 2017, if a purchaser/transferee is an exempt permanent resident but is not ordinarily resident, they may be entitled to an exemption from surcharge. For a definition of permanent resident, see the Dictionary, Clause 1 Duties Act.

To be considered an exempt permanent resident, a purchaser/transferee must meet the residence requirement.

The residence requirement is not the same as the ordinarily resident requirement. To meet the residence requirements the purchaser/transferee is required to occupy the property as their principal place of residence for a continuous period of at least 200 days from the liability date.

This exemption does not apply to purchasers/transferees who are not natural persons.

Are refunds given when the property is transferred to persons who are no longer foreign on transfer?

Yes. If surcharge has been paid on an agreement for sale or transfer of residential related property, and the Chief Commissioner is satisfied that none of the transferees, in respect of a transfer made in conformity or partial conformity with the agreement, are foreign persons, a refund may be sought once all transferees are registered on title.

Part acquisition by foreign person

Surcharge is only payable by the foreign person on the proportion of the property they are acquiring.

If the residential-related property is purchased by two parties as joint tenants and one joint tenant is a foreign person, the joint tenancy will be treated as tenants in common in equal shares and the surcharge will be applied to the foreign person’s share (being 50 per cent of the dutiable value of the property).

Further information

Last updated: 18 July 2016