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CPN 039: Surcharge Land Tax, Sections 5A and 5B of the Land Tax Act 1956 - Principal Place of Residence

Practice Note number CPN 039
Tax/benefit Land Tax - Surcharge Land Tax
Date issued 6 March 2026
Issued by Rhonda Kable
Commissioner of State Revenue
Effective from6 March 2026
Effective to-
Status Current
 

Background

  1. From the 2017 land tax year, surcharge land tax applies to all "foreign persons"1 who own residential land in New South Wales. Australian citizens and persons "ordinarily resident"2 are not classified as foreign persons and are therefore not liable to surcharge land tax.
  2. Liability to surcharge land tax for a land tax year is determined as at the "taxing date" (i.e., midnight on 31 December immediately preceding the land tax year).  As at the taxing date, an individual will be "ordinarily resident" if:
    • the individual was actually in Australia during 200 or more days in the period of 12 months immediately preceding 31 December in the relevant year (whether or not the 200 days were consecutive); and
    • at that time:
      • the individual is in Australia and the individual’s continued presence in Australia is not subject to any limitation as to time imposed by law; or
      • the individual is not in Australia but, immediately before the individual’s most recent departure from Australia, the individual’s continued presence in Australia was not subject to any time limitation imposed by law (i.e. the individual is a permanent resident).
  3. A permanent resident is classified as foreign if they do not meet the "ordinarily resident" test.
  4. From the 2018 land tax year, permanent residents who do not satisfy the ordinarily resident test under section 5A of the Land Tax Act 1956 ("the Act") are exempt from surcharge land tax on their principal place of residence (PPR) under section 5B of the Act, provided the property is their PPR, they are physically present in Australia for at least 200 days continuously during the tax year and the other requirements of the section (outlined further in paragraph 10 below) are satisfied. This is called the "residence requirement".
  5. This is a second chance for permanent residents who did not satisfy the "ordinarily resident" test. The exemption applies exclusively to their PPR. In exceptional circumstances, the Chief Commissioner may waive this requirement in cases where an individual’s physical absence from Australia is brief.

The amendments commenced on the date of assent, being 19 May 2022. The following examples and dates used should be read as if they all start from the 2023 Land Tax year.

Commissioner’s Practice Note

Difference between sections 5A and 5B

Section 5A of the Act: Surcharge land tax on residential land owned by foreign persons

  1. Surcharge land tax is payable in respect of residential land owned by a foreign person at midnight on 31 December of the preceding tax year. A person is not a foreign person if they are an Australian citizen or "ordinarily resident" in Australia on the taxing date.
  2. An individual is taken to be "ordinarily resident" in Australia on a taxing date if the person has actually been in Australia for 200 or more days of the preceding 12-month period and the person’s continued presence in Australia is not subject to any time limitations imposed by law.
  3. This 200-day rule is not continuous and is therefore different from the requirement in section 5B (see below). The person can travel in and out of Australia but will need to be physically in Australia on at least 200 days in the 12-month period.

Section 5B of the Act: Residence requirement applying to PPR

  1. This section provides an exemption from surcharge land tax to permanent residents, who are not ordinarily resident, if they intend to use and occupy the land as their PPR for a continuous period of 200 days during the relevant tax year and to be physically present in Australia for that continuous period of 200 days.
  2. Section 5B of the Act provides that a person is eligible for an exemption from surcharge land tax in respect of their PPR (but not other residential land that they hold, such as an investment property) for a land tax year only if:
    1. the person is a permanent resident at midnight on 31 December of the previous year, and
    2. the person intends to use and occupy the land as their PPR for a continuous period of 200 days during the relevant tax year, and
    3. the person intends to be physically present in Australia for a continuous period of 200 days, and
    4. the Chief Commissioner is satisfied that, during the land tax year, the person intends to use and occupy the land as the PPR of the person in accordance with the residence requirement, and
    5. the person lodges a declaration to the effect that the person has that intention; and
    6. the person lodges a land tax return required to be furnished under section 12 of the Principal Act - Land Tax Management Act 1956 ("LTMA") for the land tax year.
  3. If the owner does not satisfy the 200-day continuous residence requirement by being physically present in Australia for that period, surcharge land tax will be assessed as if the person’s exemption from surcharge had never applied. The Chief Commissioner may waive the requirement if the person’s brief physical absence from Australia is due to exceptional circumstances3.
  4. The taxpayer can still be eligible for the exemption if, at the taxing date, the property was not their PPR. For example, the exemption might apply if a taxpayer:
    • has a PPR at the taxing date but will be moving into another property they own on the taxing date that is intended to be their PPR for a continuous period of 200 days in the subsequent land tax year; or
    • purchased a property on or before the taxing date but will only commence using and occupying the property as their PPR after the taxing date.

The following table shows how both sections 5A & 5B work

Days in Australia in prior year Land Tax YearComments
365 2022 Not liable for surcharge land tax under section 5A as the permanent resident was "ordinarily resident" as at the taxing date of
31 December 2021.
100 2023 Permanent resident is not "ordinarily resident" for Land Tax year 2023 because they did not meet the 200 day requirement in 2022.
However, if the property is the person’s PPR for =/>200 days continuously in 2023 and the person is physically present in Australia continuously in 2023 for =/>200 days the person will be exempt from surcharge land tax under section 5B.
220 2024 Not liable for surcharge land tax under section 5A as the permanent resident was "ordinarily resident" as at the taxing date of
31 December 2023.
190 2025 Permanent resident is not "ordinarily resident" for Land Tax year 2025 because they did not meet the 200 day requirement in 2024.  
However, if the property is the person’s PPR for =/>200 days continuously in 2025 and the person is physically present in Australia continuously in 2025 for =/>200 days the person will be exempt from surcharge land tax under section 5B.
Example 1

John, a permanent resident, returned to Australia in November 2022 after living in the UK for 8 months and immediately purchased a residential property. As he was not in Australia for 200 days in 2022, he is not ordinarily resident for the purposes of the 2023 land tax year and would ordinarily be liable for surcharge land tax under section 5A for that year.

However, John declares that he intends to use the property as his PPR for at least 200 days in 2023. The property was John’s PPR for a continuous period of more than 200 days in 2023.  John was physically present in Australia for more than 200 days and was exempt from surcharge land tax under section 5B of the Act for the 2023 tax year.

As John also met the 200 day requirement for the purposes of the 2024 land tax year (i.e. he was physically present in Australia for at least 200 days in 2023), he is ordinarily resident for the 2024 land tax year and therefore is not liable to surcharge land tax for that year.

In February 2024, John left Australia for 6 months and rented his house while he was absent.  Although he used and occupied his house as his PPR before he left Australia and after he returned, he was not in Australia for 200 days during 2024, and he is therefore not ordinarily resident for the 2025 land tax year so will be subject to surcharge land tax in 2025 under section 5A. However, if he declares that he intends to live in the property in 2025, he will be exempt from surcharge under section 5B provided it remains his PPR for at least 200 days continuously during 2025 and he is physically present in Australia for that continuous period.

The residence requirement

  1. On the taxing date (i.e., at midnight on 31 December prior to the relevant tax year), the person must have an intention to use and occupy the land as the person’s PPR for a continuous period of at least 200 days in the land tax year.
  2. This exemption is for permanent residents who do not meet the "ordinarily resident" definition as at the taxing date and who would hence otherwise be liable to surcharge land tax under section 5A. The residence requirement in section 5B requires that the permanent resident be physically present in Australia for a continuous period of 200 days of the tax year during which the property is the person’s PPR.
  3. This also applies where the permanent resident is in Australia for a continuous period of 200 days or more during the land tax year even if they are not physically in their PPR for a continuous period of 200 day or more.  For example, the person may travel to other places in Australia for work or holidays, but the property cannot be rented out or otherwise dealt with in a manner inconsistent with it being their PPR during this time.
  4. The Chief Commissioner may, in exceptional circumstances, waive the residence requirement in relation to the person’s brief physical absence from Australia pursuant to section 5B(2B) of the Act.

Exceptional Circumstances

  1. In Nulty v Blue Star Group Pty Ltd [2011] FWAFB 975 at [13], the Full Bench of Fair Work Australia (renamed Fair Work Commission) said that in order to be exceptional, circumstances must be out of the ordinary course, or unusual, or special, or uncommon but need not be unique, or unprecedented, or very rare. Circumstances will not be exceptional if they are regularly, or routinely, or normally encountered. Exceptional circumstances can include a single exceptional matter, a combination of exceptional factors or a combination of ordinary factors which, although individually of no particular significance, when taken together are seen as exceptional.
  2. The Chief Commissioner may accept that exceptional circumstances exist for the purposes of section 5B(2B) of the Act where a person’s brief physical absence from Australia is, for example, to travel overseas to:
    • attend a funeral
    • assist with the care of a sick or dying relative
    • attend the marriage of an immediate family member.

The Chief Commissioner will consider whether other circumstances are exceptional on a case-by-case basis.

Brief physical absence

  1. "Brief" is not defined in the Act but, whatever the exceptional circumstance is, the time away from Australia must be for no longer than is necessary. Whether a physical absence from Australia is brief or not, is to be determined against the benchmark of 200 days set out in section 5B and not some different benchmark.4
  2. Although a person may only fall short of the 200-day physical presence requirement by a brief period (say less than a week), this is not the focus of section 5B(2B). The words "brief physical absence from Australia" do not lend themselves to allow for a severance of an actual period of physical absence into different parts. What is a brief physical absence from Australia must be determined having regard to the actual period of physical absence.5 Accordingly, regard will be had to the block of time that a person is outside Australia to ascertain whether it is brief in respect of the 200 day requirement.
  3. The Chief Commissioner will generally accept an absence from Australia for a period of up to 21 days to be brief for the purposes of section 5B(2B).
Example 2

Mark, who is a permanent resident, returned from overseas and purchased a property in Parramatta in November 2023. As Mark was not in Australia for 200 days in 2023, he would ordinarily be liable for surcharge land tax under section 5A for the 2024 land tax year. However, he declares that he intends to use the property as his PPR for the 2024 tax year, so that he may be exempted from surcharge under section 5B.

Mark lived in the property from the time he purchased the property and up to 15 July 2024. Mark had to go overseas on 16 July as his mother passed away. He stayed overseas for a week and then returned and stayed in his residence for the rest of the year.

Mark was in the country for a continuous period of 197 days in 2024, left for a week and was back in the country and continued to use and occupy his PPR for the rest of the year. As Mark was not in the country for a continuous period of 200 days, he has not met the requirements for the exemption even though the property was not leased to anyone while Mark was overseas, the travel was for a short period and the property continued to be his PPR whilst he was away. However, this will be construed as exceptional circumstances and the requirement to be in the country for a continuous period of 200 days can be waived and the exemption granted.

Example 3

John has been a permanent resident of Australia since 2010. John is married to Mary and has two children, Thomas and Sophie. Mary, Thomas and Sophie are Australian citizens.

John and Mary purchased a residential property in Surry Hills for their family in 2013 and it was their PPR. They held it as tenants in common with John holding 20 per cent of the property. They do not own any other property.  In January 2022, John acquired work with a foreign corporation in Asia. This employment required John to work outside of Australia for short intervals throughout the year. John was overseas for approximately 2 to 3 weeks at a time and returned to Australia for approximately 2 to 3 weeks in between his work assignments. John continued to work for the foreign corporation throughout 2022 and 2023 and was in Australia for less than 200 days in each year. John’s family lived in the PPR throughout 2022, 2023 and 2024, and when John was in Australia he lived at the PPR. John and Mary never leased their PPR at any time.

As John was in Australia for 200 days in 2021, he is not liable for surcharge land tax under section 5A for the 2022 land tax year.  However, he is liable for both the 2023 & 2024 tax years in respect of his 20 per cent ownership of the property. John would not be able to claim the exemption under section 5B because he was not physically present in the country for a continuous period of 200 days for both years, notwithstanding that his family continued to use and occupy the property as their PPR.  In addition, there are no grounds to waive the residence requirement because his absences from Australia were simply due to work.

Example 4

Tim has been a permanent resident of Australia since 2010. Tim is married to Miriam and has two children, Tom and Stella. Miriam, Tom and Stella are Australian citizens. Tim and Miriam purchased a residential property in Surry Hills for their family in 2013, as their PPR. They do not own any other property.  In January 2024, Tim’s mother, Susan, who lives in Malaysia, was diagnosed with stomach cancer. Susan underwent significant chemotherapy treatment and surgery during 2024 and 2025 but unfortunately passed away in August 2025.

During 2024 and 2025, Tim went to Malaysia to care for Susan and, after her death, to administer her estate. Tim was in Australia for 140 days in 2024 and 198 days in 2025. Tim’s family lived at the PPR throughout 2024 and 2025, and when Tim was in Australia, he lived at the PPR. His furniture and effects were stored at the PPR, and all of his utility bills were posted to the PPR. Tim and Miriam never leased the PPR at any time.

Tim was in the country for 200 days in 2023 and therefore was not subject to surcharge land tax for the 2024 tax year under section 5A. As he was in the country for 140 days in 2024, he would ordinarily be liable for surcharge land tax for the 2025 tax year under section 5A. However, Tim stayed in his PPR for 198 days in the 2025 tax year, consisting of 133 continuous days at the beginning of 2025 after which he left for a week to be with Susan whose health seemed to deteriorate but then improved before he returned to his PPR for a further continuous period of 65 days. Tim then received notice of Susan’s imminent death in August 2025 which saw him away for the next three months. Tim did not meet the requirements for an exemption under section 5B, but the exemption will be granted due to the exceptional circumstances and the waiver of the brief physical absence of 7 days which would otherwise have seen Tim physically present in Australia for over 200 days.

Example 5

Cynthia, a permanent resident, buys a home in NSW in October 2023 upon her return from Germany where she lived for 9 months. She has not met the ordinarily resident test for the 2024 land tax year and would ordinarily be liable to surcharge land tax for that year.

Cynthia lives in her home for the first 150 days of 2024 then travels overseas for 30 days. She lives in her home for another 50 days on her return to Australia before leaving Australia for the remainder of the year. While Cynthia has used and occupied her home in NSW for a period of 200 days in 2024, she is not eligible for the exemption under section 5B because she was not in Australia for a continuous period of 200 days. There were no exceptional circumstances to warrant the exercise of the discretion in section 5B(2B) of the Act.

Revocation of the exemption

  1. Whilst an exemption under section 5B may be granted based on a declared intent of a permanent resident to use and occupy the land as their PPR for a continuous period of 200 days, the person must then meet the residence requirement and be physically in Australia for that continuous period of 200 days to retain the exemption. If the residence requirement is not complied with by the person, despite the declaration, surcharge land tax liability is to be reassessed as if the person’s exemption from lability to pay surcharge land tax for the land tax year had never applied. The failure of the person to comply with the residence requirement is taken to be a tax default for the purpose of the Taxation Administration Act 1996. Accordingly, interest will be charged as provided in section 5B(5) of the Act and penalty tax may also apply where there has been a failure to take reasonable care.

Footnotes

1 "Foreign person" is defined in section 2A of the Land Tax Act 1956 as having the same meaning as in Chapter 2A of the Duties Act 1997 which adopts the meaning of "foreign person" in the Foreign Acquisitions and Takeover Act 1975 ("FATA"). See also 'Revenue Ruling G 009 Definition of a Foreign Person'
2 Section 5 of the FATA of the Commonwealth
3 Prior to 19 May 2022 (when section 5B(2A) was inserted into the Act by the State Revenue and Fines Legislation Amendment (Miscellaneous) Act 2022), use and occupation for PPR purposes could be met even if there was a prolonged physical absence from Australia.
4 Chen v Chief Commissioner of State Revenue [2025] NSWCATAD 189 (Chen’s case) at [36]
5 Chen’s case at [41]