Skip to content

Duty and Land Tax Surcharges on Foreign Persons in NSW

In New South Wales, from 21 June 2016, residential property transactions involving ‘foreign persons’ have been subject to both duty surcharge and land tax surcharge. As a result, you may pay very high tax surcharges when selling or transferring residential-related property to a foreign person. In some cases, as much as 19% of the value of the property will be added as an extra tax surcharge. This article looks at when these surcharges apply.

In NSW, duty and land tax surcharges can apply to the transfer of, or to certain other transactions involving residential property. This includes:

  • residential land in NSW;
  • an option to purchase residential land in NSW;
  • certain interests in the above; and
  • a partnership interest (where the partnership property includes residential-related property outlined above).

Residential land excludes land used for primary production and includes:

  • parcels of land on which there are one or more existing dwellings or dwellings under construction;
  • strata lots if lawfully occupied as a separate dwelling; and
  • parcels of vacant land that is zoned or otherwise designated for use under an environmental planning instrument for residential purposes.

Foreign Persons

To trigger the surcharges, the transfer or sale of the residential-related land must then be made to a foreign individual, company or trust.

Foreign Individuals

For duty surcharge purposes, an individual is a foreign person unless they are:

  • an Australian citizen (even if they live overseas); or
  • a permanent resident that ordinarily resides in Australia.

To ‘ordinarily reside in Australia’ the person needs to have been in Australia for 200 days or more in the preceding 12-month period.

Foreign Companies

A company is a foreign person if:

  • an individual foreign person, a foreign corporation or a foreign government holds at least a 20% interest in the company; or
  • two or more persons, each of whom is an individual foreign person, hold an aggregate 20% interest.

Foreign Trusts

A trust is a foreign person if:

  • an individual foreign person, a foreign company or foreign government hold a substantial interest in the trust; or
  • two or more persons, each of whom is an individual foreign person, hold an aggregate substantial interest.

For a trust, a ‘substantial interest’ is a beneficial interest in at least 20% of the income or property of the trust.

Continue reading this article below the form
Loading form

Discretionary Trusts with Foreign Family Beneficiaries

One of the most common situations is for an Australian citizen to find out that their discretionary trust is actually counted as a ‘foreign person’.

Australia is a multicultural society and it is not uncommon for the broad class of discretionary objects in modern trust deeds to include a beneficiary’s foreign relatives. In line with the substantial beneficial interest definition discussed above, this would render the trust itself to be a foreign person for duty and land tax surcharge purposes.

In this case, your discretionary trust may have to pay duty and land tax surcharges if it:

  • acquired residential related property in NSW on or after 21 June 2016; or
  • held residential land in NSW as at midnight on 31 December 2016 or 31 December 2017.

One way to fix this is to amend the trust deed so that it will no longer be treated as a foreign person, by removing the foreign beneficiaries. However, you should seek legal advice before doing so, as this may cause a ‘resettlement’ of the trust (making a new trust out of the old assets). This would potentially trigger both capital gains tax and duty surcharges.

Key Takeaways

The duty and land tax surcharges represent a significant cost in property transactions. In particular, the surcharge rules have far-reaching implications for Australian individuals with what they (often mistakenly) understand to be ordinary Australian trusts. Therefore, before transferring property into a trust, it is essential to seek legal advice on whether your trust counts as a ‘foreign person’ and if so, whether it is possible to amend the trust deed to avoid this.

If you need further advice on amending a trust deed for tax planning purposes, call LegalVision’s taxation lawyers on 1300 544 755 or fill out the form on this page.

Register for our free webinars

ACCC Merger Reforms: Key Takeaways for Executives and Legal Counsel

Online
Understand how the ACCC’s merger reforms impact your legal strategy. Register for our free webinar.
Register Now

Ask an Employment Lawyer: Contracts, Performance and Navigating Dismissals

Online
Ask an employment lawyer your contract, performance and dismissal questions in our free webinar. Register today.
Register Now

Stop Chasing Unpaid Invoices: Payment Terms That Actually Work

Online
Stop chasing late payments with stronger terms and protections. Register for our free webinar.
Register Now

Managing Psychosocial Risks: Employer and Legal Counsel Responsibilities

Online
Protect your business by managing workplace psychosocial risks. Register for our free webinar.
Register Now
See more webinars >
James Meli

James Meli

Read all articles by James

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards