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 from the 2017 land tax year onwards. The surcharge land tax (surcharge) was introduced in the 2016 NSW Budget.
You are required to pay the surcharge on the taxable value of all residential land that you own as at 31 December each year including your principal place of residence.
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.
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.
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
- have not previously paid land tax, please call us on 1300 139 816 and we will arrange your login details over the phone so that you can inform us of your foreign status and residential land details.
From March 2017, we will calculate land tax surcharge and issue assessment notices for you to pay. Surcharge will be included as part of your land tax assessments after this date.
You can find examples of surcharge calculations and definitions for important terms below.
Foreign person – individual
An individual, who is not an Australian citizen, is a foreign person if they are not ordinarily resident in Australia.
Australian citizens are not foreign persons, regardless of where they live. Permanent residents of Australia are not foreign persons so long as they are ordinarily resident in Australia.
New Zealand citizens are not foreign persons if they hold a special category visa, within the meaning of section 32 of the Migration Act 1958 of the Commonwealth and they are ordinarily resident in Australia.
An individual is ordinarily resident in Australia for the relevant land tax year if the individual:
has actually been in Australia during 200 or more days in the previous calendar year, and
is not (or, if not in Australia, was not immediately before their most recent departure from Australia) subject to any limitation as to time for their 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:
- an individual not ordinarily resident, a foreign corporation or a foreign government holds a substantial interest, 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 substantial interest.
Foreign person – trusts
The trustee of a trust is a foreign person if:
- an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest in the trust, 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 substantial interest in the trust.
See recent Revenue rulings for more about how foreign persons are defined.
Foreign person surcharges – Discretionary trusts
Revenue Ruling G010 has recently been introduced.
It exempts a discretionary trust from surcharge taxes with retrospective effect if the trust deed is amended to remove foreign persons from the list of beneficiaries at any time between the introduction of the surcharges and the present date, and otherwise within 6 months after the liability was assessed.
For more infomation please see FAQ's.
Where a trust is a fixed trust for land tax purposes, the beneficiaries are liable for their proportionate interests only. However, the trustee is responsible to pay the surcharge if the beneficiary defaults.
For special trusts, beneficiaries are not treated as owners and therefore they will not have to pay the surcharge. However, if any one or more of the potential beneficiaries are foreign persons, the trustee will be liable for surcharge land tax on the trust's interest in the property.
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:
- controls that percentage of the voting power in the entity; or
- holds interests in that percentage of the issued securities in the entity; or
- would hold interests in that 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.
A person holds a substantial interest in an entity or trust if:
- for an entity—the person holds an interest of at least 20 per cent in the entity; or
- 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.
Two or more persons hold an aggregate substantial interest in an entity or trust if:
- for an entity—the persons hold an interest of at least 40 per cent in the entity; or
- 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.
The definition of associate includes:
- individuals (e.g. relatives)
- companies (e.g. substantial interest holders, holding entities, senior officers)
- 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, linealdescendent or adopted child of that person, or of that person’s spouse (and the spouse of any of these persons).
Residential land includes any of the following:
- 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
- a strata lot, if it is lawfully occupied as a separate dwelling, or suitable for lawful occupation as a separate dwelling, or
- a utility lot if its use is restricted to the owner or occupier of a strata lot, or
- 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
- 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
The principal place of residence exemption does not apply for surcharge land tax. Even if an owner is residing in the property, it will be liable for the surcharge if an owner is a foreign person.
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 the same as for calculating the surcharge. The tax liability will generally be 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.
Examples of land tax calculations
'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 at 0.75% of $700,000 is $5250.00.
'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 by 'A' is calculated on $2 million, which is $23,316.00.
The surcharge is calculated on the residential land which is 0.75% of $1.2 million = $9,000.
'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 = $7,316
The surcharge land tax payable by 'B' is:
Taxable land value of the interest owned by the foreign person x 0.75%
$500,000 x 0.75% = $3,750
'A' and 'B' own residential land with a total land value of $400,000. They each own a 50% interest in the land.
'A' solely owns residential land with a taxable value of $300,000.
'A' is a foreign person. 'B' is an Australian citizen.
The land tax payable by 'A' and 'B' is calculated on the $400,000 and is nil.
'A' owns 50% of the $400,000 which is $200,000. 'A' also owns land with a value of $300,000. The land tax payable is nil as the land is under the threshold of $549,000. These are both subject to the surcharge.
The surcharge is 0.75% of $500,000 which is $3,750.
'A' owns residential land with a total land value of $400,000.
'A' is a foreign person
The land tax payable is nil as the land is under the threshold of $549,000.
The surcharge is 0.75% of $400,000 which is $3,000.
Example 6: Tracing an interest held through interests in other corporations or trusts
If a foreign person holds a substantial interest or foreign persons hold an 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.
Amendments to discretionary trusts—surcharge land tax
On 20 February 2017, the Minister for Finance, Services and Property approved a Variation to Statute to allow the Chief Commissioner of State Revenue to exercise discretion to give retrospective effect to amendments of trust deeds that remove the trustee’s power to make distributions to any beneficiary who is a foreign person.
The discretion is subject to the trustee not being involved in a scheme or arrangement for evasion or avoidance of surcharge land tax.
When does the Variation to Statute take effect?
The Variation to Statute takes effect retrospectively from 21 June 2016 and will be in force until the legislation is amended.
What is the purpose of the Variation to Statute?
The purpose of the Variation to Statute is to avoid discretionary trusts becoming inadvertently liable for surcharge purchaser duty and/or surcharge land tax.
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 must also be irrevocable.
Why do I have to pay surcharge land tax 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 land tax 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 land tax if you have now amended the trust deed to exclude foreign persons as beneficiaries.
How long do I have to amend my trust deed?
From the date surcharge land tax is assessed under a notice of assessment, trustees have six months to amend their trust deed. 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.
How do I apply for a reassessment and refund of the surcharge land tax I have already paid?
To support your eligibility for a reassessment and refund, you must provide:
- a cover letter
- a complete copy of the deed that established the trust; and
- the amended trust deed.
Your application can be posted to:
Office of State Revenue
GPO Box 4042
Sydney NSW 2001
How will my refund of surcharge land tax be paid?
A refund will be paid using Electronic Funds Transfer to the bank account you have nominated.
After I have amended my trust deed to comply with the Variation to Statute, and applied for a refund, what will happen if I make a distribution to a foreign person?
If a trustee of a discretionary trust amends the trust deed to comply with the Variation to Statute, but later makes distributions to foreign persons or alters the terms of the trust permitting distributions to foreign persons, it could indicate that the trustee engaged in a scheme or arrangement for the evasion or avoidance of surcharge purchaser duty. The Chief Commissioner may reassess and charge surcharge land tax and impose interest and penalty.
Find out more
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