Many new migrants believe that once they obtain PR, they no longer need to pay the various surcharges imposed on foreign persons when buying property in Australia. In reality, however, in NSW many PR holders have found that they still have to pay a “Land Tax Surcharge”. What is this charge?
NSW land tax is divided into two parts. The first is Land Tax, and the other is the Land Tax Surcharge. The two are not the same.
Land Tax
Under current policy, if the total land value of all property held in an individual’s name — other than their principal place of residence — exceeds AUD 822,000, land tax is payable. The specific amount payable is: (total land value of investment properties − $822,000) × 1.6 + $100.
Land Tax Surcharge
From 21 June 2016, the NSW Government has stipulated that, in addition to general land tax, foreign persons who purchase residential property in NSW may also be required to pay a Land Tax Surcharge. Unlike land tax, the Land Tax Surcharge has no tax-free threshold.
In other words, this charge is specifically aimed at foreign persons.
I have PR — am I still a “foreign person”?
Many people who have already obtained Australian permanent residency will ask: I already have PR, am I still a foreign person?
First, we need to understand NSW’s definition of a “foreign person”. Other than the following cases, all other situations are classified as foreign person:
Is an Australian citizen;
Has resided in Australia for 200 days (inclusive) or more during the 12 months prior to the 31 December tax assessment date, and;
Holds PR, or is a New Zealander holding a 444 visa
Apart from these three situations, all other cases are classified as foreign persons. That is, PR holders who have not lived in Australia for at least 200 days, as well as all temporary visa holders (including work visas, student visas, tourist visas, bridging visas, etc.), are all required to pay this surcharge.
Of course, as mentioned above, certain visa holders — such as permanent residents and 444 visa holders — will be exempt from the surcharge land tax on their principal place of residence if, in a land tax year, they have lived continuously, or intend to live, in that principal residence for 200 days. However, these visa holders or permanent residents must meet certain requirements. If you have any questions about this, please feel free to consult our lawyers.
From next year, the Land Tax Surcharge is going up again
From 2018 to the present, the NSW Government has levied the surcharge uniformly at 2% of land value on foreign persons holding residential property. The Land Tax Surcharge has no tax-free threshold; from 1 January 2018 the surcharge rate has been 2%. For example, if on 31 December 2018 a parcel of land was valued at $5,000,000, the surcharge for the 2019 tax year would be $5,000,000 × 2% = $100,000.
However, under the NSW 2022–2023 Budget, the Land Tax Surcharge on foreign persons will increase from the current 2% to 4%, taking effect from midnight on 31 December this year. NSW Treasurer Matt Kean stated that this revenue will be used for health services and other budget expenditures.
These cases are exempt from the Land Tax Surcharge
From 2017, certain commercial residential buildings have been exempt from the Land Tax Surcharge, mainly the following:
Hotels and motels
Guest houses and apartments
Student accommodation
Retirement villages and other aged-care facilities
Bed and breakfasts
Caravan and residential parks
Apartments, serviced apartments, cabins and holiday villas
What about jointly owned property?
If a property has two or more owners, the Land Tax Surcharge payable will differ according to each owner’s visa status.
If two people jointly purchase a property and one party only holds a 50% share, that person is only required to pay the surcharge on the land value proportionate to their share, rather than on the value of the entire property.
For example:
A husband and wife each hold 50% of the title. However, for business reasons the husband has not obtained citizenship and, while holding PR, lives long-term overseas, spending no more than 200 days per year in Australia. The wife is an Australian citizen and lives in Australia permanently. In this situation, how is the Land Tax Surcharge paid?
In this situation, because the wife is an Australian citizen she is not required to pay the Land Tax Surcharge. The husband, as a PR holder who spends fewer than 200 days per year in Australia, is only required to pay the Land Tax Surcharge on his 50% share of the title.
Final thoughts
Overall, the Land Tax Surcharge is aimed primarily at foreign persons holding residential property, and has no tax-free threshold. The landowner’s nationality, visa category, and length of residence in Australia are all factors that affect the surcharge payable. Before purchasing property in NSW, we recommend consulting a qualified legal professional to understand the relevant laws and obligations in more detail, and to reduce unnecessary financial losses.
