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Frequent questions

Surcharge purchaser duty

Who is liable to pay surcharge purchaser duty?

Foreign persons who acquire residential property in NSW on or after 21 June 2016 are liable to pay surcharge duty.

What is the definition of a foreign person?

Foreign person means:

  1. an individual not ordinarily resident in Australia; or

  2. a corporation in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or

  3. a corporation in which 2 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; or

  4. the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest; or the trustee of a trust in which 2 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; or

  5. a foreign government; or

  6. a general partner of a limited partnership where:

    1. an individual  not ordinarily resident in Australia, a foreign corporation or a foreign government holds at least 20% in the limited partnership, or

    2. 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 interest of at least 40% in the limited partnership.

This definition does not include an Australian Citizen, irrespective of where they reside.

What does ordinarily resident mean?

An individual is ordinarily resident in Australia at a particular time if the individual has actually been in Australia during 200 or more days in the period of 12 months immediately preceding that time, and is not (or 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.

Is a New Zealand citizen a foreign person?

A New Zealand citizen is not classified as a foreign person 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”.

What does substantial interest mean?

A person holds a substantial interest in an entity or trust if:

  1. for an entity—the person holds an interest of at least 20% in the entity; or
  2. for a trust (including a unit trust)—the person, together with any one or more associates, holds a beneficial interest in at least 20% of the income or property of the trust.

What is an aggregate substantial interest?

Two or more persons hold an aggregate substantial interest in an entity or trust if:

  1. for an entity—the persons hold an aggregate interest of at least 40% in the entity; or
  2. 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% of the income or property of the trust.

When does a person hold an interest in a corporation?

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:

  1. controls that percentage of the voting power in the entity; or
  2. holds interests in that percentage of the issued securities in the entity; or
  3. would hold interests in that percentage of the issued securities in the entity if relevant options were exercised.

When does a person hold an interest in a trust?

An interest in a trust includes:

  1. a beneficial interest in the income or property of the trust; or
  2. an interest in a unit in a unit trust.

Who is an associate of a person?

The definition of an associate includes individuals, companies, partnerships, trusts and superannuation funds.

For more information see section 6 of the Foreign Acquisitions and Takeovers Act 2015 of the Commonwealth and Guidance Note 32 of the Foreign Investment Review Board.

How is residential land defined?

Residential land means any of the following and does not include any land used for primary production:

  1. 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
  2. a strata lot, if it is lawfully occupied as a separate dwelling, or suitable for lawful occupation as a separate dwelling, or
  3. a utility lot if its use is restricted to the owner or occupier of a strata lot
  4. a land use entitlement, if it entitles the holder to occupy a building, or part of a building, as a separate dwelling, or
  5. a parcel of vacant land that is zoned or otherwise designated for use for residential or principally for residential purposes.

What does dwelling mean?

Dwelling means a house, or a room or a suite of rooms (whether or not forming part of a building or a detached building), that is occupied or capable of being used  as a separate dwelling.

What is 'residential-related property'?

Residential-related propertyis any of the following:

  1. residential land in New South Wales,
  2. an option to purchase residential land in New South Wales,
  3. an interest in any residential-related property referred to in (a) or (b), except to the extent that:
    1. it arises as a consequence of the ownership of a unit in a unit trust scheme and is not a land use entitlement, or
    2. it is, or is attributable to, an option over residential-related property,
    3. it is a marketable security.
  4. a partnership interest(being an interest in a partnership that has partnership property that is residential-related property).

What if the residential land is used for purposes other than residential?

If the residential land is used for purposes other than residential, the duty will be calculated after reducing the dutiable value of the residential-related property by the apportionment factor (see section 104ZB of the Duties Act 1997 for further information).

What transactions will be liable to surcharge purchaser duty?

Surcharge purchaser duty is chargeable on:

  1. a transfer of residential-related property to a foreign person, and
  2. the following transactions:
    1. an agreement for the sale or transfer of residential-related property to a foreign person,
    2. a declaration of trust over residential-related property where a beneficiary of the trust is a foreign person.
    3. a surrender of an interest in residential land in New South Wales to a foreign person
    4. a foreclosure of a mortgage over residential property by a mortgagee who is a foreign person,
    5. a vesting of residential-related property in a foreign person by or as a consequence of an order of a court of this or another jurisdiction, whether inside or outside Australia,
    6. the enlargement of a term in residential land into a fee simple, if the person who acquires the estate in fee simple is a foreign person,
    7. a vesting of residential land in New South Wales in a foreign person by, or expressly authorised by, statute law of this or another jurisdiction, whether inside or outside Australia,
    8. a lease of residential land to a foreign person, being a lease in respect of which a premium is paid or agreed to be paid, and
  3. a transfer of partnership interest to a foreign person if the partnership has partnership property that is residential-related property, and
  4. a transfer of an option to purchase residential land where a foreign person is the transferee, and
  5. a novation of an agreement for the lease of residential land in New South Wales where a foreign person is deemed to be the transferee.

When does the surcharge purchaser duty commence?

The surcharge purchaser duty commences on  21 June 2016. All relevant transactions that occur on or after 21 June 2016 will be liable for the surcharge.

What is the rate of the surcharge purchaser duty?

The surcharge purchaser duty is 4% of the dutiable value of the interest in residential property acquired by foreign persons. This duty is in addition to the duty payable on the purchase of the property.

I’m a foreign person, but I’m not buying the property for investment. Am I liable to the surcharge purchaser duty?

Yes, whether you’re an investor or otherwise, if you are a foreign person and you acquire residential land in NSW, the surcharge purchaser duty may be payable.

If I am a foreign person and I purchase a farm with a house on it, will I be liable for the surcharge purchaser duty?

If you purchase land used for primary production you will not be liable for surcharge purchaser duty, even if the land also has other uses. There is a requirement, however, that the dominant use of the land is for primary production if it is zoned rural. For non-rural land, there are also some other requirements to satisfy the definition of land used for primary production.

When does the liability arise?

Liability for duty arises when a transfer of dutiable property occurs. If this transaction is evidenced by a written instrument, liability arises when the instrument is first executed. For a contract for sale of land, the exchange date (or contract date) is when the liability arises.

When must duty be paid for 'off the plan' purchases undertaken by foreign persons?

Duty and the surcharge purchaser duty must be paid within 3 months after the liability to duty arises. For contracts entered into on or after 21 June 2016, the liability date is not extended for foreign persons purchasing “off the plan”.

What if one of the purchasers under an  'off the plan' purchase is not a foreign person?

The duty and surcharge purchaser duty must still be paid within the 3 months after the liability arises. The extension to the liability date in section 49A of the Duties Act 1997 does not apply to transactions where any purchaser or transferee is a foreign person.

What if a residence was purchased by a couple and one of the spouses/partners is a foreign person?

The surcharge purchaser duty is charged only on the value of the interest acquired by the foreign person.

What if the purchasers or transferees are joint tenants and one joint tenant is a foreign person?

For the purposes of the surcharge purchaser duty joint tenants are taken to be tenants in common in equal shares and the surcharge purchaser duty will be applied to 50% of the value of the property.

Are some transactions exempt from the surcharge?

Transactions which are exempt under chapter 2 are generally exempt from the surcharge purchaser duty. There are some exceptions:

  1. The First Home-New Home Scheme
  2. The New Home Grant Scheme
  3. Transfers of the principal place of residence to joint names for married couples and de facto partners.

Is the trustee of a discretionary trust liable to the surcharge purchaser duty if a foreign person is a beneficiary of that trust?

Yes, from 21 June 2016, any time a trustee of a discretionary trust purchases residential property in NSW, and any beneficiary of that trust is a foreign person, the trustee may be liable to the surcharge purchaser duty.

Am I liable to the surcharge purchaser duty if I inherit a property under a deceased estate?

No, the surcharge purchaser duty will not be payable unless the trusts under the will are varied under an agreement made between the foreign beneficiary and one or more of the other beneficiaries. In that case surcharge purchaser duty will be payable on the portion of the property to which the foreign beneficiary did not have an entitlement arising under the trusts contained in the will or arising on intestacy.

Do we get a refund of the surcharge purchaser duty if the contract is cancelled?

If your contract is cancelled and you are not liable to duty on the contract, then no surcharge purchaser duty is payable. Your duty and the surcharge purchaser duty will be refunded.

If surcharge purchaser duty has been paid on the contract and none of the transferees are foreign persons would the surcharge purchaser duty be refunded?

Yes, you will get a refund of the surcharge purchaser duty if none of the transferees in respect of a transfer made in conformity or partial conformity with the agreement are foreign persons.

If the contract is made prior to 21 June and the transfer occurs on or after 21 June will there be a liability for the surcharge purchaser duty?

If the contract is dated prior to 21 June and the transfer in conformity occurs on or after 21 June, no surcharge duty will apply.

If my contract is dated prior to 21 June 2016 and a transfer under section 18(3) of the Duties Act 1997 is executed on or after 21 June 2016, is surcharge purchaser duty payable if the transferee is a foreign person?

Yes, a transfer to a foreign person executed on or after 21 June 2016 will be liable to the surcharge purchaser duty unless surcharge purchaser duty has already been paid on the contract for the proportion of the property that the transferee is receiving.

If I enter into two or more dutiable transactions over residential property and they are aggregated under section 25 of the Duties Act 1997, will I be liable for surcharge purchaser duty if I’m a foreign person?

Yes, any proportion of the properties being purchased by foreign persons will be liable to the surcharge purchaser duty, if they are entered into on or after 21 June 2016. This is in addition to the duty payable under the aggregation.

How is duty calculated?

If 'A', who is a foreign person, purchases a residential property for $2 million, duty calculation is as follows:

Duty payable on $2 million is $95,490

Surcharge of 4% on $2 million is $80,000

Total payable is $95,490 + $80,000 = $175,490

How is duty calculated on a property if there are multiple purchasers and one of them is a foreign person?

If 'A', 'B' and 'C' purchase a residential property for $2.7 million as tenants in common in equal shares and 'C' is a foreign purchaser, duty calculation is as follows:

Duty payable on $2.7 million is $ 133,990

The value of 'C’s' 1/3 interest in the property is $900,000 (1/3 of $2.7 million).

Surcharge of 4% on $900,000 is $36,000

Total payable is $133,990 + $36,000 = $169,990

Does the surcharge apply on the GST inclusive purchase price?

Yes, the surcharge is payable on the GST inclusive purchase price.

If an option to purchase residential land is transferred to a foreign person, does that transaction attract the surcharge purchaser duty?

Yes, the transfer will be liable to the surcharge.

Landholder transactions

Does the surcharge apply to landholder transactions?

Yes, the surcharge will apply to landholder transactions if:

  1. there is a landholder duty liability
  2. one or more of the persons acquiring the interest is a foreign person
  3. at least part of the property of the landholder is residential land

How is the surcharge calculated on a landholder transaction if the sole purchaser is a foreign person?

The surcharge will only be payable on the part of the landholdings that comprise residential property.

How is the surcharge calculated on a landholder transaction if there are multiple purchasers and only one of them is a foreign person?

The surcharge is only payable on the interest acquired in the residential property by the foreign person.

XYZ Pty Ltd is a landholder with landholdings both commercial and residential valued at $10 million. The value of the residential land is $4 million. There are two purchasers both acquiring 50 per cent each of the shares in the company. Only one of the purchaser’s is a foreign person.

In addition to the landholder duty payable, the surcharge of 4% is payable on $2 million which is 50% of the value of the residential property.

Amendments to discretionary trusts

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 to the trust deed must also be irrevocable.

Will I need to pay duty if I amend my trust deed?

If the variation is or includes a declaration of trust, the variation will be liable to duty on the unencumbered value of the dutiable property at the date of the declaration, without any deduction for liabilities of the trust.

In the case of a discretionary trust over dutiable property, an assignment of the interest of a taker in default will be a dutiable transaction over dutiable property, and will be liable to duty on the greater of the consideration for the transfer and the unencumbered value of the 'dutiable property'.

The following variations to discretionary trusts are not dutiable transactions over dutiable property, and will not be liable to duty:

  1. a variation that adds or deletes a beneficiary who is a taker in default;
  2. a variation that adds or deletes a beneficiary who are discretionary objects;
  3. a variation that varies the interests inter se of beneficiaries without altering the identity of beneficiaries; and
  4. a variation that merely inserts or amends administrative powers without affecting the interests (if any) of the beneficiaries in the trust property.

For more details, see Revenue Ruling DUT 017.

Why do I have to pay surcharge purchaser duty 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 purchaser duty 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 purchaser duty paid in respect of a dutiable transaction entered into on or after 21 June 2016 if you have now amended the trust deed to exclude foreign persons as beneficiaries.

How long do I have to apply for a refund of the surcharge purchaser duty I have already paid?

The Chief Commissioner will accept applications for reassessment up to six months after the date of legislative amendment.

How do I apply for a reassessment and refund of the surcharge purchaser duty I have already paid?

To support your eligibility for a reassessment and refund, you must provide:

  • a cover letter,
  • the original stamped contract for the sale of land,
  • a complete copy of the deed that established the trust (stamped if applicable),
  • the amended trust deed, and

Your application can be posted to:

Office of State Revenue
GPO Box 4042
Sydney NSW 2001

How will my refund of surcharge purchaser duty be paid?

A refund will be paid using Electronic Funds Transfer to the bank account you have nominated. If a third party's account details are provided we need consent authority from the taxpayer/s.

I have entered a contract on behalf of a discretionary trust to purchase residential land and I am liable to pay surcharge purchaser duty, but I intend to amend my trust deed in the near future to comply with the Variation to Statute. Do I still need to pay surcharge purchaser duty?

Yes. If you are unable to provide evidence that the trust deed has been amended to comply with the Variation to Statute, you must pay the surcharge purchaser duty within three months from the contract date.

When you can provide the required evidence, you can apply for a reassessment. We will accept applications up to six months after the date of legislative amendment.

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 purchaser duty and impose interest and penalty tax.

Last updated: 20 July 2017