Land tax surcharge

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If you are a foreign person who owns residential land in NSW, you must pay a surcharge of 0.75 per cent for the 2017 land tax year and of two per cent from the 2018 land tax year onwards.

You may be a foreign person if you are not an Australian citizen.

A foreign person can be:

  • an individual
  • a corporation
  • a trustee of a trust
  • a beneficiary of a land tax fixed trust
  • a government
  • a government investor
  • a partner in a limited partnership.

You are required to pay the surcharge on the taxable value of all residential land that you own as at 31 December each year. A principal place of residence exemption may apply to you for 2018.

The surcharge is in addition to any land tax you may already pay. You may be required to pay the surcharge even if you do not pay land tax.

The surcharge is assessed in relation to each parcel of land, and is proportional to ownership. There are no joint assessments and secondary deductions do not apply. There is no tax-free threshold applicable to the surcharge.

What you need to do

If you are a foreign person and:

  • already pay land tax, please use your Client ID and correspondence ID to update your foreign status and residential land details via Land tax online

  • have not previously paid land tax, please contact us and we will arrange your login details over the phone so that you can go to Land tax online to inform us of your foreign status and residential land details.

We will calculate the surcharge and issue an assessment notice for you to pay. The surcharge will be included as part of your land tax assessments.

You can find examples of surcharge calculations and definitions for important terms below.

Definitions

Foreign person – individual

You are a foreign person if you are not an Australian citizen or an ordinarily resident. New Zealand citizens are not foreign persons if they hold a special category visa, within the meaning of section 32 of the Commonwealth Migration Act 1958, and they are ordinarily resident in Australia.

Ordinarily resident

Ordinarily resident means you have been in Australia 200 or more days in the previous calendar year and are not subject to any limitation on your continued presence in Australia. This does not include the date of arrival or the date of departure.

Foreign person – corporations

A corporation is a foreign person if:

  • substantial interests are held by an individual not ordinarily resident, a foreign corporation or a foreign government, or

  • aggregate substantial interests are held by two or more people that are not permanent residents who ordinarily reside in Australia, a foreign corporation or a foreign government.

Foreign person – trusts

The trustee of a trust is a foreign person if:

  • substantial interests are held by a beneficiary who is an individual and is not ordinarily a resident of Australia, a foreign corporation or a foreign government

  • aggregate substantial interests are held by two or more individuals who are not ordinarily residents of Australia, a foreign corporation or a foreign government.

See the legal guidelines or revenue rulings for more about how foreign persons are defined.

Fixed trusts

Beneficiaries are liable for proportionate interests where a trust is a fixed trust for land tax purposes. However, if the beneficiary defaults, the trustee is responsible to pay the surcharge.

Special trusts

Beneficiaries are not treated as owners for special trusts and do not have to pay the surcharge unless one or more beneficiaries are foreign persons. In that case the trustee is liable for surcharge land tax on their interest in the property.

Foreign person surcharges – Discretionary trusts

A legal guideline, Revenue Ruling G010v2, exempts a discretionary trust from surcharge taxes. Retrospective exemption can be applied for land tax if the trust deed is amended to remove foreign persons from the list of beneficiaries within six months after granting the exemption.

Interest

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

  1. controls a percentage of the voting power in the entity; or

  2. holds interests in the percentage of the issues securities in the entity; or

  3. would hold interests in the percentage of the issued securities in the entity if relevant options were exercised.

Interest in a trust is:

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

For a discretionary trust, each beneficiary is taken to hold a beneficial interest in the maximum percentage of income or property that the trustee may distribute to that beneficiary.

Substantial interest

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.

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 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.

Associate

The definition of associate includes:

  • individuals (e.g. relatives)
  • companies (e.g. substantial interest holders, holding entities, senior officers)
  • partnerships
  • trusts and super funds (e.g. substantial interest holders).

A relative of a person means:

  • the person’s spouse

  • the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or adopted child of that person, or of that person’s spouse (and the spouse of any of these persons).

Residential land

Residential land includes any of the following:

  1. a parcel of land on which there are one or more dwellings, or a parcel of land on which there is a building under construction that, when completed, will constitute one or more dwellings, or

  2. a strata lot, if it is lawfully occupied as a separate dwelling, or suitable for lawful occupation as a separate dwelling, or

  3. a utility lot if its use is restricted to the owner or occupier of a strata lot, or

  4. a land use entitlement, if it entitles the holder of the land use entitlement to occupy a building, or part of a building, as a separate dwelling e.g. company title and residential flats, or

  5. a parcel of vacant land that is zoned or otherwise designated for use for residential or principally for residential purposes.

Residential land does not include land used for primary production that is exempt from land tax.

The surcharge applies if a building has both residential and commercial purposes. In this case, an apportionment factor is used to apportion the land value.

Principal place of residence exemption

From the 2018 tax year, permanent residents, including New Zealand citizens holding a Special Category visa (subclass 444), will be exempt from surcharge land tax on their principal place of residence, if they occupy the home for a continuous period of 200 days in the land tax year. The exemption must be applied for by 31 March in the relevant tax year.

Note: this principal place of residence exemption does not apply for the 2017 tax year - even if an owner is residing in the property, it will be liable for the surcharge if an owner is a foreign person.

Other exemptions

All other land tax exemptions may apply, including:

  • boarding houses
  • low cost accommodation
  • residential parks
  • retirement villages
  • primary production land
  • childcare centres.

Calculating the surcharge

To assess the surcharge, we calculate the taxable value of residential land, taking into account any relevant exemptions, the use of the land, and the proportion of ownership of each foreign person.

The taxable value of residential land used for land tax purposes is also used to calculate the surcharge. The tax liability is generally the average of the unimproved land value for the current tax year and for the previous two tax years.

Where a parcel of land was only recently created (for example, by subdivision or amalgamation) the average value will be based only on the values for those taxing dates when the newly created land item existed.

Example 1 - individual ownership, land value over the tax threshold

'A' is a foreign person who owns residential land with a total land value of $700,000.

The land tax payable on $700,000 is $2516.00.

The surcharge payable for the 2017 land tax year at 0.75% of $700,000 is $5250.00.

The surcharge payable for the 2018 land tax year at 2.0% of $700,000 is $14,000.

Example 2 - individual ownership, land value under the tax threshold

‘A’ is a foreign person and owns residential land with a total land value of $400,000.

The land tax payable is nil as the land is under the threshold of $549,000.

The surcharge payable for the 2017 land tax year at 0.75% of $400,000 is $3,000.

The surcharge payable for the 2018 land tax year at 2.0% of $400,000 is $8,000.

Example 3 - commercial and residential land ownership

'A' is a foreign person who owns land with a total land value of $2,000,000.  'A' owns both commercial and residential land.

$1,200,000 of the land held by 'A' is 'residential land'. The remaining $800,000 is commercial land.

The land tax payable is (taxable land value − land tax threshold) x 1.6% + $100:

($2,000,000 - $549,000) x 1.6 % + $100 which is $ 23,316

The surcharge payable for the 2017 land tax year is calculated on the residential land (0.75% of $1.2 million) is $9,000.

The surcharge payable for the 2018 land tax year is calculated on the residential land (2.0% of $1.2 million) is $24,000.

Example 4 - land owned in partnership

'A' (an Australian citizen) and 'B' (a foreign person) each own a 50% interest in a block of residential land with a taxable land value of $1 million.

The land tax payable by 'A' and 'B' is:

(taxable land value − land tax threshold) x 1.6% + $100
($1,000,000 − $549,000) x 1.6% + $100 is $7,316.

As an Australian citizen, 'A' is not liable for surcharge.

The surcharge land tax payable by 'B' for 2017 is:

Taxable land value of the interest owned by the foreign person x 0.75%
$500,000 x 0.75% is $3,750.

The surcharge land tax payable by 'B' for 2018 is:

Taxable land value of the interest owned by the foreign person x 2%
$500,000 x 2% is $10,000.

Example 5 - partnership and individual ownership

'A' (an Australian citizen) and 'B' (a foreign person) own residential land with a taxable land value of $400,000. They each own a 50% interest in the land.

The land tax payable by ‘A’ and ‘B’ is calculated on the $400,000. The land tax payable for the partnership is nil as the land is under the threshold of $549,000.

‘B’ also solely owns land with a taxable land value of $300,000. The land tax payable by 'B' is nil as the land is under the threshold of $549,000.

‘B’ is subject to surcharge on both properties as a foreign person.

As an Australian citizen, 'A' is not liable for surcharge.

The surcharge payable for ‘B’ for the 2017 land tax year at 0.75% of $500,000 is $3,750.

The surcharge payable for 'B' for the 2018 land tax year at 2.0% of $500,000 is $10,000.

Example 6 - tracing an interest held through interests in other corporations or trusts

If a foreign person or persons holds a substantial interest or aggregate substantial interest in a corporation or trust, the foreign person or persons are taken to hold any interest that company or trust holds. The tracing process can be applied multiple times through a number of entities.

Discretionary trusts and surcharge

A Variation to Statute to avoid discretionary trusts becoming inadvertently liable for surcharge purchaser duty and/or surcharge land tax takes effect retrospectively from 21 June 2016 and is in force until the legislation is amended.

More information

Under the Variation, you must 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 foreign discretionary beneficiaries from receiving distributions of income and/or capital under the trust. If the trust deed names foreign beneficiaries, they must be removed in order to avoid liability for 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. In addition, amendments must be irrevocable.

It is irrelevant that a trustee might never exercise discretion to distribute income and/or capital to a foreign person. This is because each beneficiary is deemed to have the maximum percentage interest in the income or property that the trustee may or may not distribute to them.

You may apply for a reassessment and refund of surcharge land tax if you have amended the trust deed to exclude foreign persons as beneficiaries. You have six months to amend the trust deed from the date surcharge land tax is assessed (on your notice of assessment). If the amendment complies with the Variation to Statute, the Chief Commissioner will reassess the surcharge land tax to nil and issue a refund of any surcharge land tax already paid.

To apply, go online using your client ID and correspondence ID to login. To ensure we can respond promptly please supply:

  • information to explain your request of exemption from surcharge
  • a complete copy of the deed that established the trust
  • the amended trust deed
  • your bank account details - refunds are paid using Electronic Funds Transfer.

Alternatively you can email us the required information or post to:

Revenue NSW
GPO Box 4042
Sydney NSW 2001

Note: After you have amended your discretionary trust deed to comply with the Variation to Statute and applied for a refund, if you make a distribution to a foreign person, this could constitute evasion or avoidance of the surcharge purchaser duty. The Chief Commissioner can charge you the appropriate surcharge as well as imposing interest and penalties.

Contact

Phone
1300 139 816*
8.30am - 5.00pm Monday to Friday
Mail
GPO Box 4269
SYDNEY NSW 2001
Email

Last updated: 16 November 2017