Is your purchaser client potentially liable for Surcharge Land Tax?
If your client is a foreign person, they will potentially be liable to pay surcharge land tax. This is regardless of whether or not they are liable for standard land tax.
While a conveyancer cannot give tax or financial advice, it would be prudent to warn the client to make further enquiries of their accountant, financial advisor or Revenue NSW.
Surcharge is assessed in relation to each parcel of residential land and for individuals, is proportional to the part owned. It is possible to be liable for surcharge land tax even if the client is not liable for ordinary land tax (eg property is below land tax threshold). If surcharge land tax is payable, it is payable on the total taxable value of all residential land owned by a foreign person as at 31 December each year. There is no tax-free threshold applicable when calculating the surcharge.
A person is considered a foreign person unless:
- they are an Australian citizen
- they are a permanent resident of Australia and have lived in Australia for 200 days or more in the 12 months prior to the taxing date of 31 December (otherwise referred to as ordinarily resident).
Where a permanent resident of Australia does not meet the criteria above, they may be granted an exemption from the surcharge for one year only if the taxable property is intended to be occupied as their principal place of residence for at least 200 continuous days in the year immediately following the taxing date. If a client is eligible to claim this exemption from surcharge, they must claim it by 31 March for the relevant taxing year.
Once a permanent resident has met the criteria for the above exemption, they can update their foreign status with Revenue NSW to be considered ordinarily resident for the following year and onwards, assuming they continue to reside in Australia for 200 days or more each year. If this changes, Revenue NSW must be notified.
Applications for exemptions and updates to a client’s foreign status can be done using Revenue NSW’s online services and the client will need to register with RNSW on completion of their purchase to ensure that they receive all relevant notices.
(Note: Citizens of New Zealand, South Africa, Germany, or Finland are not required to pay surcharge due to international tax treaties.)
More information about surcharge, including a training video, is available on the RNSW website.