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:

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.

Definitions

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.

    Ordinarily resident

    An individual is ordinarily resident in Australia for the relevant land tax year if the individual:

    • ƒƒhas actually been in Australia during 200 or more days in the previous calendar year, and
    • ƒƒis 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.

    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.

    Fixed trusts

    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.

    Special trusts

    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.

    Interest

    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.

    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.

    Substantial interest

    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 per cent 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 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:

    1. for an entity—the persons hold an interest of at least 40 per cent 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 per cent of the income or property of the trust.

    Associate

    The definition of associate includes:

    • individuals (e.g. relatives)
    • companies (e.g. substantial interest holders, holding entities, senior officers)
    • partnerships
    • 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

    Residential land includes any of the following:

    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, or
    4. 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
    5. 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.

    Other exemptions

    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

    Example 1

    '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.

    Example 2

    '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.

    Example 3

    '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

    Example 4

    '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.

    Example 5

    '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.

    Find out more

    Phone 1300 139 816* between 7.30 am and 5.00 pm
    Mail GPO Box 4269, Sydney NSW 2001
    Email landtax@osr.nsw.gov.au

    Last updated: 20 February 2017