Are Foreign Surcharge Stamp Duty and Land Taxes Illegal?

The Federal Government’s Mid-Year Economic and Financial Outlook 2023-24 (MYEFO) (released on 13 December 2023) has again raised the legality of the ability of the States to impose foreign purchaser land transfer (stamp) duty surcharge and foreign owner land tax (together, the foreign surcharges).

What are Foreign Surcharges?

These surcharges (as detailed by us here) impact foreign buyers of property in most Australian States and Territories.  In Victoria, for example:

  1. Foreign buyers of residential land are subject to an 8% stamp duty surcharge (bringing the duty rate from 6.5% to 14.5%); and

  2. Foreign owners of land (commercial and residential) are subject to a 4% land tax surcharge (bringing the top land tax rate from 2.65% to 6.65%, payable yearly).

What is NSW’s position?

First announced by the Revenue NSW on 29 May 2023 (and discussed in our previous articles here and here), New South Wales (NSW) has accepted that foreign surcharges are not able to be applied to nationals of countries where the relevant double tax agreement (DTA) with Australia has a non-discrimination clause that covers State taxes.

There are 8 countries impacted by this issue:

  • New Zealand;

  • Finland;

  • Germany;

  • India;

  • Japan;

  • Norway;

  • South Africa; and

  • Switzerland.

Only Revenue NSW has issued refunds for impacted taxpayers from these countries.

How does Victoria’s position differ?

State Revenue Office Victoria has acknowledged the issue but has not publicly announced that it will refrain from imposing foreign surcharges or offer refunds to impacted taxpayers.

What is the Federal Government’s view?

The Federal Government appears to acknowledge that foreign surcharges could be invalid by reason of DTAs.

Under the MYEFO, the Federal Government announced (on page 194):

The Government will clarify the uncertainty associated with the interaction between foreign investment fees, and similar state and territory property taxes, and double tax agreements implemented domestically by the International Tax Agreements Act 1953, to ensure that the foreign investment fees and similar imposts prevail. This measure will have retrospective effect.

Given that this position arises due to the interpretation of treaties entered into between Australia and these 8 countries – it is unclear how the Federal Government could overcome the issue with full retrospective effect without renegotiating the DTAs.

Action required

Impacted taxpayers should consider their options in relation to these foreign surcharges. 

Please contact us with any questions or any other State Tax issues.

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

Nicholas Clifton
Principal Lawyer
T +61 3 9611 0154 | M +61 401 150 955
E nclifton@sladen.com.au

Nicholas Clifton