Foreign buyers hit by changes to NSW land tax rules

The removal of a land tax exemption for a string of nationalities could prove costly for international buyers and have unexpected consequences for Australian expatriates with foreign partners.

By Matt Heron, Tax Planning Division Manager, Australasian Taxation Services

| 9-7-2024 | Sponsored Content | 1 min read

Changes to foreign land tax exemptions have added a layer of expense and complexity for many overseas and expat buyers of New South Wales property. (Image source: Shutterstock.com)

The New South Wales Government’s recent decision to remove exemptions for foreign buyers who were compelled elsewhere to pay hefty land tax and surcharges has potentially added ten of thousands of dollars to the cost of buying in that state.

Effective from 8 April, citizens of New Zealand, Finland, Germany, India, Japan, Norway, South Africa, and Switzerland became subject to surcharge purchaser duty and surcharge land tax due to changes in federal law.

In early 2023, Revenue NSW had exempted these foreign citizens from surcharge taxes, citing inconsistencies with international tax treaties entered by the Federal Government. However, the Treasury Laws Amendment (Foreign Investment) Act 2024, effective from 8 April 2024, has now clarified these inconsistencies.

The amendment ensures that foreign investment fees and similar state and territory property taxes prevail over tax treaty provisions.

This change means that surcharge taxes can still be imposed on foreign nationals purchasing Australian property, despite any tax treaties in place.

Surcharge purchaser duty

This surcharge is in addition to the transfer duty and is set at 8 per cent of the dutiable value. From the 1 January 2025 this is going up to 9 per cent.

Surcharge land tax

The surcharge land tax is set at 4 per cent however rising to 5 per cent from 1 January 2025.

Case Study

A couple purchased their Sydney family home jointly (50/50) in October 2023 and then later moved overseas for work opportunities.

One of the couples is an Australian citizen and the other a New Zealand citizen.

While living in the home in Australia they were not subject to NSW land tax, however, when they relocated overseas land tax became payable because the property became a rental.

At the time of purchase the NSW Foreign Buyer Surcharge and Foreign Owner Land Tax Surcharge did not apply as detailed above, however, from 8 April 2024 this exemption no longer applied to the New Zealand citizen’s ownership interest in the property.

The impact of this change was significant for this couple and possibly many more in the same situation, either based overseas or planning on becoming expats.

Below is an example of the two different land tax charges based on an NSW example with an unimproved land value of $1.5 million at the current NSW land tax surcharge rate of 4 per cent, taken directly from the NSW land tax calculator.

When the rate rises on 1 January 2025 to 5 per cent, the land tax surcharge for 2025 will be a whopping $37,500, assuming the land value remains the same.