Revenue NSW has recently expanded the list of exempt countries for foreign surcharges on land purchases and holdings in NSW by citizens of those exempt countries.
Initially announced in February 2023, Revenue NSW confirmed that the charging of surcharge rates of stamp duty and land tax to foreign purchasers/owners of real property in NSW is inconsistent with non-discrimination clauses in certain international double tax treaties between Australia and other countries. Revenue NSW will not charge such surcharges to citizens of those other countries going forward.
The expanded list of countries is now as follows:
- New Zealand
- Finland
- Germany
- India
- Japan
- Norway
- Switzerland
- South Africa
Refunds are available upon application for citizens of the above countries who paid the surcharges on or after 1 January 2021.
What caused the change?
As mentioned above, the non-discrimination clauses in the international double tax treaties were identified as problematic.
It is likely this was in response to the relatively recent High Court’s decision in Addy v FCT [2021] HCA 34 (Addy). In Addy, the High Court considered whether the ‘backpackers tax’ was inconsistent with the non-discrimination clause in the Australian and UK international double tax treaty. The clause (25) relevantly 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 means that citizens of one country party to the relevant international tax treaty should not be treated unfairly or have to pay more taxes than citizens of any other party to that same treaty.
The Court found the ‘backpackers tax’ was inconsistent with the above non-discrimination clause and therefore it could not be levied in Australia on backpackers from the UK. The High Court noted that a number of additional double tax treaties with other countries contained the same or similar non-discrimination clause. Shortly thereafter, the ATO released a Decision Impact Statement noting that it would not apply the ‘backpackers tax’ to residents of those other countries.
Are any other countries expected to be included?
Based on commentary by the High Court in Addy and the ATO in the Decision Impact Statement on Addy, we expect that Chile, Turkey and Israel will be the next countries considered for duty and land tax purposes. Citizens of those countries, or countries not on the existing list, who have or will incur foreign surcharge stamp duty or land tax should reach out to their tax lawyer for further guidance.
Will Victoria follow suit?
Various State Revenue Offices (SROs) impose a surcharge (additional duty or charge) on, amongst other things, the purchase and holding of certain real estate in their state by a foreign person (including a foreign individual, company or trust).
In Victoria, the foreign surcharges are called ‘foreign purchaser additional duty’ (FPAD) for stamp duty and the ‘absentee owner surcharge’ (AOS) for land tax, the latter being an annual impost.
On 15 March 2023, the Victorian SRO acknowledged Revenue NSW’s announcement. However, surprisingly, it confirmed that FPAD and the AOS would continue to apply to all foreign purchasers. The legal basis for the Victorian SRO’s position is unclear. It appears the Victorian SRO’s current position conflicts with the anti-discrimination clauses under several international double tax treaties that Australia is party to and, moreover, conflicts with the High Court’s clear position in Addy.
Foreign purchasers or owners of Victorian real property who have been, or are considered liable to be, charged FPAD and/or AOS should seek advice in relation to whether the charging of such taxes is inconsistent with the relevant international tax treaty (particularly citizens of the countries listed above). There are also time limits for making such claims based on past payments, hence early action is recommended.
To discuss how this may affect your tax position, contact a member of our Tax & Structuring team.
This article was written by Sophie Barber (Lawyer), Justin Harty (Senior Associate), Laura Spencer (Senior Associate), and Jack Stuk (Principal Solicitor).
