In an interesting development, Revenue NSW has determined that the New South Wales surcharge land tax and duty provisions are inconsistent with Australia's international tax treaties with New Zealand, Finland, Germany and South Africa. As a result, landowners from these nations who have previously paid surcharge purchaser duty or surcharge land tax on or after 1 July 2021 may be eligible for refunds. The international tax treaties may also affect the liability of non-individual entities such as corporations, trusts, or partnerships with ties to these countries.Ari Armstrong, Maddocks
In NSW, if a discretionary trust deed does not explicitly and irrevocably exclude foreign beneficiaries, the trustee of that trust will generally be liable to foreign purchaser duty and surcharge land tax. Foreign duty/land tax surcharge rates and rules differ depending on the State in which particular land is located. Each State has its own definition of what may be a "foreign person” in cases of acquisition of residential land.
A trustee can amend their deed – either before purchasing land (for a trust which does not already own land to avoid the impost of foreign purchaser stamp duty), or before the end of a calendar year (to avoid foreign person surcharge land tax) - so that foreign surcharge duty and land tax does not apply. The variation needs to ensure foreign persons are excluded as beneficiaries of the trust.
Section 5D of the Land Tax Act (1956) (NSW) is administered harshly and with very little discretion. For example, in Picone and anors v Chief Commissioner of State Revenue  NSWCATAD 382, ex gratia relief was sought - from land tax being assessed at surcharge rates in respect of a calendar year - due ‘special circumstances’, on the grounds that:
These arguments were unsuccessful and the surcharge assessments stood.
An international tax treaty is a bilateral agreement between the national governments of two countries that sets out the rules for how taxes will be levied on income and assets that cross their borders and can also include an agreement that countries will not impose extra taxes or duties on each other’s citizens. Relevantly, Australia’s tax treaties with New Zealand, Finland, Germany and South Africa all have ‘non-discrimination’ provisions which require each country, in levying taxes, to treat nationals of the other country no less favourably than it treats its own nationals in the same or similar position. The treaties and how their broader impact on State taxes is discussed in further detail in a related article published here.
It is important to note that the Victorian SRO on 15 March 2023 announced it will not follow Revenue NSW’s approach on international tax treaties to limit the imposition of foreign surcharge duty and land tax. They have not, as yet, offered a reason for this position.
In short, the reversal may not be all that practically useful for trusts with beneficiaries or potential beneficiaries of these countries. Whilst it is clear that citizens of New Zealand, Finland, Germany or South Africa, acquiring residential-related property in their own capacity will no longer be subject to surcharge purchaser duty, it seems unlikely that a discretionary trust (without the foreign beneficiary exclusion clause) that has paid the surcharge would be able to claim a refund. This because the relevant test under the legislation requires that the trust deed has an irrevocable foreign person exclusion clause, in order that the trust qualifies to avoid surcharge land tax and duty in NSW. In the absence of such a clause, the trust will likely permit distributions to all foreign persons, including foreign persons outside of New Zealand, Finland, Germany and South Africa. Revenue NSW considers that any foreign person in the world is capable of being a ‘potential beneficiary’ of the discretionary trust and therefore the trustee is taken to be a foreign person in that capacity. However such a trust which excluded potential beneficiaries to avoid surcharge duty and land tax, may be able to ‘walk back’ those exclusions to allow distributions to potential beneficiaries from New Zealand, Finland, Germany and South Africa. A careful variation may be possible, to vary the deed to narrow the definition of an excluded ‘foreign person’, to say the definition does not apply to persons from, say, South Africa. This would require a careful approach and, in our experience, ought only be done alongside a ruling from the relevant authority.
Revenue NSW has stated that they will proactively identify customers and transactions that may be eligible for the removal of surcharge purchaser duty and land tax. However, if you have not been contacted by Revenue NSW in relation to surcharge purchaser duty paid, you may initiate contact with Revenue NSW. You must provide them with all the required evidentiary documents. If your transaction is eligible for the removal of surcharge purchaser duty, any interest or penalty tax you paid for the surcharge purchaser duty amount will also be refunded. In relation to refunds to surcharge land tax, if you have not been contacted by a member of Revenue NSW to initiate your refund, you can lodge a return via Revenue NSW’s online services. If you are eligible for the removal of surcharge land tax, any interest or penalty tax you paid for the surcharge land tax amount will also be refunded. Revenue NSW will transfer refund payments to Australian bank accounts within 28 days of making a determination. Revenue NSW will only consider arranging a transfer to an overseas bank account in exceptional circumstances. If you disagree with Revenue NSW’s determination decision, you should seek legal advice to determine if you have any other rights of review.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.
You can read earlier ClearLaw articles on a range of topics, such as:
Alisha Wright is an Associate in Maddocks’ Commercial Team.
Alisha advises extensively in a range of matters including:
Alisha has recently assisted with providing advice to SMSFs in relation to their compliance obligations and the drafting of bespoke shareholders agreements.
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