Foreign persons that acquired residential property in NSW on or after 21 June 2016 are liable to pay, currently an 8% surcharge duty in addition to the usual duty payable on the purchase. Foreign land tax surcharge of currently 2% will also apply to foreign persons owning residential property in NSW since 31 December 2016 for the 2017 and subsequent land tax years.
While these changes have been in place for a number of years now, Revenue NSW are undertaking risk reviews and issuing assessments. Homeowners are being met with the imposition of surcharge duty, penalty tax and interest for residential property acquisitions that have occurred over the past five years.
Who is a foreign person?
In 2016, we wrote in detail about who is deemed to be a 'foreign person' for the purpose of applying surcharge purchaser duty and land tax surcharges. By way of a refresher, each of the Duties Act 1997 (NSW) and the Land Tax Act 1956 (NSW) apply the same meaning of 'foreign person', including as follows:
- an individual not ordinarily a resident in Australia (except for Australian citizens or a New Zealand citizen holding a special category visa under section 32 of the Migration Act 1958); or
- a corporation or trustee of a trust in which an individual not ordinarily a resident in Australia, a foreign corporation or a foreign government holding a substantial interest (20%).
What is the current situation?
This year, Revenue NSW has dramatically increased its enforcement efforts in relation to surcharge purchaser and land tax duties. Unfortunately, it seems that on countless occasions dating back as far as 2016, stamping agents, conveyancers and solicitors did not correctly identify the liability for surcharge purchaser duties and foreign surcharge land tax (Foreign Surcharges).
This is now resulting in Revenue NSW imposing Foreign Surcharges on homeowners where one or more persons are a foreign person. This can be distressing and financially problematic, with surcharge purchaser duty alone often ranging between $30,000 to over $100,000 with annual foreign surcharge land tax applying annually. Not only are these amounts often difficult for the average homeowner to meet unexpectedly, but they can call into question the original investment decision, as the decision to purchase, or to structure the purchase in a particular way, didn't factor in these amounts.
Aside from the Foreign Surcharges, Revenue NSW may impose penalty tax and interest for late payment. Revenue NSW have powers to remit penalty tax and interest depending on circumstances.
I'm an advisor to residential buyers - what is my role in this?
Frustrated foreign persons are, quite understandably, looking to their advisors for answers when Revenue NSW come calling. This presents a timely reminder for advisors to update themselves on the application of Foreign Surcharges. If you are an advisor to residential buyers, you should be considering the following:
- Are your clients Australian citizens? If they personally or their discretionary trust have been assessed as a foreign person, we can assist with reassessment, objection and advice relating to their potential liability for Foreign Surcharges.
- Are your clients not an Australian citizen but are NZ or permanent residents who ordinarily resident in Australia for 200 or more days? We can assist with reassessment or objection of the Foreign Surcharges.
- If you are an accountant or advisor:
- how do Foreign Surcharges impact discretionary trusts, unit trusts or discretionary testamentary trusts (Trust) that own residential property? For more information read - NSW duty and land tax surcharges to impact discretionary trusts
- what if the Trust is a shareholder of a company or unit trust that owns residential property? Your client's Trust may be liable for Foreign Surcharges even if it does not own any land.
- where the Trust deed does not contain an amendment power, we can assist with a private ruling to Revenue NSW to confirm that the Trust is not a foreign person.
- if the Trust deed does not contain a Foreign Surcharges irrevocable amendment, will the trustee be liable for Foreign Surcharges?
- if the foreign person is an Australian based property developer, we can assist with applications for refunds and reassessment to exempt the Foreign Surcharges from applying.
- If you are a solicitor or accountant, what is the best structure for the transaction when considering all costs and potential taxes including estate planning and succession planning objectives?
- If you are a mortgage broker, should your clients look to purchase the property only in the name of the Australian citizen and will this impact on their ability to obtain finance?
What should you do if Revenue NSW contacts you?
If you or your client:
- receives a notice of investigation or notice of assessment from Revenue NSW, or
- are a foreign person who acquired residential property since 26 June 2016,
you can contact Lisa To for advice as to your Foreign Surcharges liability and potential exemptions and remissions for penalty tax and interest.
Finally, we can review the information given to you at the time of purchasing the residential property and advise on your rights to make a claim in the event the information received was defective or negligent. You should contact Gavin Stuart and Scott Homan for an initial discussion concerning a potential claim.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.