Surcharge purchaser duty

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.

Commercial residential - Revenue ruling No. G 011

Why has the Chief Commissioner issued Revenue Ruling No. G 011?

On 21 June 2016 the NSW Government introduced Purchase Surcharge Duty on residential property. There is no surcharge purchaser duty on commercial property. Some types of commercial businesses provide a form of housing on residential land.

The NSW Government has issued Revenue Ruling No. G 011 to provide clarity for these businesses. Most proprietors will be able to determine if they fall into the commercial residential category which is exempt from surcharge. This will reduce the overall incidence where proprietors of commercial operations occur on residential land will need to seek a private ruling on their liability.

The ruling identifies the following commercial premises as not satisfying the definition of “dwelling” according to s 104I(2) of the Duties Act 1997 (‘Duties Act’) and therefore not liable to surcharge:

  • Hotels, Motels and Inns
  • Hostels and Boarding Houses
  • Student Accommodation
  • Aged Care and other care facilities
  • Bed and Breakfast Accommodation
  • Caravan and Home Parks
  • Separately titled rooms, apartments, serviced apartments, cottages and villas

It is important to refer Revenue Ruling No. G 011 for more information on the features that must be present to meet the requirements of the section. The Chief Commissioner will also consider other categories of premises not listed above, on a case by case basis.

If ‘residential land’ is acquired after the commencement of s 104I(2) of the Duties Act and it contains a premises which may not be a ‘dwelling’ under s 104I(2) of the Duties Act, will the acquisition be liable to surcharge purchaser duty?

Yes, an assessment of surcharge purchaser duty will be made unless the Chief Commissioner determines that the premises is not a ‘dwelling’ under s 104I(2) of the Duties Act 1997. Revenue Ruling No. G 011 provides guidelines that identify the types of premises determined not to be a dwelling by the Chief Commissioner.

If ‘residential land’ with a premises was acquired prior to the commencement of s 104I(2) of the Duties Act surcharge purchaser duty was paid. The premises is not a ‘dwelling’ under s 104I(2) of the Duties Act. Can a reassessment be made?

Yes, a reassessment of the surcharge purchaser duty liability will be made and any resulting overpayment will be refunded, provided that the requirements under Revenue Ruling No. G 011 have been satisfied. A request for a reassessment must be made within 5 years after the initial assessment.

What types of premises are considered not to be ‘dwellings’ under s 104I(2) of the Duties Act?

The following premises are considered not to be ‘dwellings’ for the purposes of s 104I(2) of the Duties Act 1997:

  • Hotels, Motels and Inns
  • Hostels and Boarding Houses
  • Student Accommodation
  • Aged Care and other Care Facilities
  • Bed and Breakfast Accommodation
  • Caravan and Home Parks
  • Separately titled rooms, apartments, serviced apartments, cottages and villas

Refer to Revenue Ruling No. G 011 for more information on the features that must be present to meet the requirements of s 104I(2) of the Duties Act.

The Chief Commissioner will also consider other categories of premises not listed above, on a case by case basis.

How will the Chief Commissioner determine that a premises is not a ‘dwelling’ under s 104I(2) of the Duties Act?

The Chief Commissioner will consider objective factors that are relevant to characterising premises as falling within paragraphs 5 to 12 of Revenue Ruling No. G 011. These factors include the overall character of the premises, how the premises are operated, and whether it is operated for commercial purposes.

Ultimately, whether a premises falls within a class of premises specified in Revenue Ruling No. G 011 involves the weighing up of all relevant factors to determine if it exhibits the requisite characteristics so as not be a ‘dwelling’.

What supporting documents are required to substantiate that a premises is not a ‘dwelling’ for the purposes of s 104I(2) of the Duties Act?

The supporting documents vary and depend on the type of premises to be considered. As a general rule, each application will involve a test of facts and will be considered on a case by case basis. Applicants are strongly encouraged to provide any supporting documents which substantiates their claim that a premises is not a ‘dwelling’ for the purposes of s 104I(2) of the Duties Act 1997.

How is an application for assessment or reassessment to be made?

Application for assessment or reassessment is made by way of written submission setting out the grounds for assessment or reassessment under s 104I(2) of the Duties Act 1997, with supporting documentation attached. This type of application cannot be processed on EDR.

For assessments, the lodgement will also need to include:

For reassessments, the lodgement will also need to include:

Lodgements for assessment or reassessment should be sent to:

Revenue NSW
Duties Branch
GPO Box 4042
Sydney NSW 2001

Overpayments will be refunded via Electronic Funds Transfer. Eligible applicants will receive further instructions on how to proceed once their matter is determined.

Australian-Based Developers that are Foreign Persons - Revenue Ruling No. 013 & Orders Approved by the Treasurer

Why is the Chief Commissioner granting surcharge purchaser duty concessions for Australian-based developers that are foreign persons?

On 21 June 2016, the NSW Government introduced surcharge purchaser duty on residential property. Australian-based developers who are foreign persons (‘Australian-based developer’) were liable to surcharge purchaser duty on the acquisition of residential land used for the construction and sale of new homes, or used for subdivision and sold for new home construction.

Amendments to the Duties Act 1997 (‘Duties Act’) have since been made with the addition of s 104ZJA, which ensures that foreign-owned, Australian-based developers will no longer be liable to surcharge purchaser duty if they acquire residential land used for the construction and sale of new homes, or used for subdivision and sold for new home construction.

Section 104ZJA of the Duties Act provides for a surcharge purchaser duty concession in two forms, being:

  1. an exemption from surcharge purchaser duty for the Australian-based developer, or
  2. a refund of surcharge purchaser duty paid on transfers, or agreements for the sale or transfer, of residential-related property to the Australian-based developer

The Chief Commissioner has issued Revenue Ruling No. G 013 to provide guidance on the conditions which need to be met to be granted an exemption under s 104ZJA. The Orders approved by the Treasurer (‘Treasurer’s Orders) outlines how refunds of surcharge purchaser duty will be administered under s 104ZJA.

Why are there two forms of concessions?

The concession will be administered on an exemptions and/or refunds basis, depending upon whether the Chief Commissioner is of the opinion that the Australian-based developer would likely become entitled to a full refund of the surcharge purchaser duty on a transaction or a class of transactions to which the concession applies.

For transactions where the Chief Commissioner determines that the Australian-based developer is likely to become entitled to a full refund, an exemption from surcharge purchaser duty will be approved in lieu of a refund, per Revenue Ruling No. G 013. If an Australian-based developer paid surcharge purchaser duty on a transaction prior to the exemption being approved, the exemption may apply retrospectively and a full refund granted.

For transactions where the Chief Commissioner is not of the opinion that the Australian-based developer is likely become entitled to a full refund, surcharge purchaser duty will need to be paid and refunds will be made on a whole or proportionate basis, per the Treasurer’s Orders.

How will the Chief Commissioner determine which two forms of concession are applicable?

To support the NSW Government’s Housing Affordability Strategy, the Chief Commissioner will consider granting exemptions from surcharge purchaser duty before administering refunds on a proportionate basis.

Eligibility for exemption will be dependent upon the Australian-based developer supplying documentation (such as those specified in clause 11) to support clause 9 and 10 of Revenue Ruling No. G 013, which may assist the Chief Commissioner in forming an opinion that the Australian-based developer is likely to be entitled to a full refund of the surcharge purchaser duty.

How does the Chief Commissioner consider if an Australian-based developer is likely to become entitled to a full refund?

In determining this, the Chief Commissioner will consider the requirements set out in clause 9 of Revenue Ruling No. G 013. An Australian-based developer that meets these factors is known as an ‘exempt transferee’, per s 104ZJA(3).

If an Australian-based developer enters into an agreement for the sale of residential land and has paid surcharge purchaser duty, what requirements need to be met to be eligible for an exemption or refund?

The minimum requirements for an Australian-based developer to be granted a refund are as follows:

  1. It must be an Australian corporation as defined under s 104JZA(8), and

  2. is a transferee under a transfer of residential land, per s 104ZJA(1), and

  3. it (or a related body corporate) has constructed a new home on the residential land that it has then sold to a person who is not an associated person of the transferee, per s 104ZJA(1)(a), or

  4. it has subdivided the residential land for the purpose of new home construction that it has then sold after the issue of a subdivision certificate for the subdivision, per s 104ZJA(1)(b).

If the aforementioned requirements are satisfied, the Chief Commissioner will refund the whole or a proportion of the surcharge purchaser duty paid. Further guidance is provided under the Treasurer’s Orders on how proportionate refunds are administered under s 104ZJA(2).

If the Chief Commissioner is of the opinion that the Australian-based developer has satisfied clause 9 (having regard to the factors set out in clause 10 of Revenue Ruling No. G 013) and is likely to become entitled to a full refund (i.e. the Australian-based developer is an ‘exempt transferee’), a refund of the full amount of surcharge purchaser duty will be granted. In this instance, the Treasurer’s Orders will have no applicability.

Can an Australian-based developer be granted an exemption for future transactions?

An Australian-based developer that is approved as an ‘exempt transferee’ may, for future transactions, be exempted from surcharge purchaser duty. Approval as an ‘exempt transferee’ may be subject to specific conditions which the Chief Commissioner could impose to ensure compliance with s 104ZJA.

The Chief Commissioner will also consider the granting of pre-transaction approvals to Australian-based developers where there is evidence of past involvement in new home construction or the subdivision of land for new home construction.

Can approval as an ‘exempt transferee’ be revoked?

The Chief Commissioner may revoke an approval as an ‘exempt transferee’ at any time by notice to the Australian-based developer, per s 104ZJA(5)(c). The revocation can be retrospective and transfers, or agreements for the sale or transfer, exempted from surcharge purchaser duty can be reassessed as if the approval had never applied, per s 104ZJA(5)(d)-(e).

Under what circumstances could the Chief Commissioner revoke approval as an ‘exempt transferee’?

The Chief Commissioner may revoke an exemption having regard to the exempt transferee’s conduct. Circumstances which may warrant revocation of an exemption include, but are not limited to, conduct set out in clause 16 of Revenue Ruling No. G 013.

Is there a time limit for reassessment and refund?

Yes, an application for reassessment and refund must be made within 12 months after the completion of the sale of the new home or the issue of the subdivision certificate and no later than 10 years after completion of the transfer of residential-land to the Australian-based developer.

What is a ‘related body corporate’ for the purposes of the provision?

A ‘related body corporate’ is defined under s 50 of the Corporations Act 2001. An Australian trustee company is taken to be an Australian corporation or ‘related body corporate’ for the purposes of s 104ZJA.

How is an application for exemption or reassessment and refund to be made?

Application for exemption or reassessment is made by way of written submission setting out the grounds for exemption or reassessment under s 104ZJA of the Duties Act, with documentation (such as those specified in clause 11) to support clause 9 and 10 of Revenue Ruling No. G 013. This type of application cannot be processed on EDR.

For applications for exemption where a transaction has been effected but no surcharge purchaser duty has been paid, the lodgement will also need to include:

Applications for pre-transaction approvals will need to be made by way of written submission setting out the grounds for exemption and will also need to include:

  • Statutory declaration that the purchaser/transferee is eligible for an exemption from surcharge purchaser duty as it has met (or will meet) the requirements set forth in s 104ZJA of the Duties Act 1997 and clauses 9A and 9B of Revenue Ruling No G. 013.

For reassessments, the lodgement will also need to include:

Lodgements should be sent to:

Revenue NSW
Duties Branch
GPO Box 4042
Sydney NSW 2001

Refund payments will be processed via Electronic Funds Transfer. Eligible applicants will receive further instructions on how to proceed once their matter is determined.

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: 20 March 2018