On 21 February 2023 Revenue NSW announced that it has been determined that NSW surcharge purchaser duty and surcharge land tax (Surcharge Provisions) are inconsistent with international tax treaties entered into by the Australian Federal Government with New Zealand, Finland, Germany, and South Africa (Treaty Countries).

In essence, Revenue NSW has determined that the Surcharge Provisions were incorrectly charged on the basis that they infringed the requirements of international tax treaties entered into with the Treaty Countries.

Surcharge Provisions

Currently, foreign purchasers of residential land in New South Wales (NSW) must pay an 8% duty surcharge on the taxable value of any residential land bought. Additionally, foreign persons must also pay a land tax surcharge of 4% on the taxable value of all residential land held in NSW, payable on 31 December of each year.

International Tax Treaties

Revenue NSW has conceded that the Surcharge Provisions are inconsistent with the non-discrimination clauses present in the international tax treaties between Australia and the Treaty Countries. For example, Article 23 of the Agreement Between The Government Of Australia And The Government Of Finland For The Avoidance Of Double Taxation And The Prevention Of Fiscal Evasion states:

Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States.

Similar clauses are found in Article 23A of the South African equivalent treaty, and Article 24 of both the German and New Zealand treaties. It is also further clarified in these treaties that these articles apply to “taxes of every kind and description imposed on behalf of the Contracting States.”

Direct Implications of Revenue NSW Announcement

Effective immediately, citizens of the Treaty Countries will no longer be liable to pay surcharge duty and surcharge land tax under the Surcharge Provisions in NSW.
Surcharge duty or surcharge land tax liability for non-individuals such as corporations, trusts or partnerships that arise because of an entity’s affiliation with these Treaty Countries may also be affected by these international tax treaties.
Refunds may be available for purchasers/transferees and landowners from the Treaty Countries who have paid surcharge duty or surcharge land tax under the Surcharge Provisions.
NB: Revenue NSW’s website currently states that refunds may be available for surcharge duty or land tax paid on or after 1 July 2021. It is unclear at this stage whether surcharge duty or land tax paid before this date will be eligible for a refund or if it is just for the purposes of processing refunds up to such date.
Refunds of interest and penalty tax may also be available in relation to the Surcharge Provisions.

What about Victoria and other states?

It will be noted that the State Revenue Office of Victoria (SRO) has also acknowledged the announcement by Revenue NSW and has advised that it is considering the implication of the announcement.

As these international tax treaties are entered into by the Australian Federal Government with Treaty Countries, Revenue NSW’s position presumably would soon be adopted by the various states and territories which have provisions similar to the Surcharge Provisions.

Separately, taxpayers from the Treaty Countries who have also amended or varied their discretionary trust deeds to irrevocably restrict relevant trust provisions so that the Surcharge Provisions do not apply should consider further the effect of such variations already made or to be made.

Queries

Should you have any queries in relation to Revenue NSW’s announcement or would like to further discuss your liability to surcharge purchaser duty or surcharge land tax in any state or territory in Australia, please contact our specialist state taxes team:

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au

Elizabeth Wong
Para-Legal
T + 61 3 9611 0174
E: ewong@sladen.com.au