Increases to surcharge land tax underway

In the recent 2022-2023 NSW Budget, the Treasurer announced that foreign investor land tax surcharge is to double from 2% to 4% starting from the 2023 land tax year. This means that foreign owners may be liable to a land tax rate of up to 5.6% annually (with the consideration of the general land tax rate, being 1.6%, but without the premium rate). The move is anticipated to generate new revenue of $294 million over the four years to 2025-2026. Furthermore, in an effort to generate a further revenue of $146 million over the same four-year period, land tax early payment discount will be reduced from 1.5% to a mere 0.5% from 1 January 2023. 

In addition, an additional compliance investment of $60 million will be made for land tax and transfer duty. This will take the form of further investments in system upgrades and improved data management at Revenue NSW.

The existing regime

Since 2018, a foreign person who owns residential land in NSW must pay a surcharge land tax of 2% in addition to any land tax payable. A discount of 1.5% is available to taxpayers who pay their land tax in full within 30 days after their assessment has been issued.

Certain categories of foreign owners are exempt (and will continue to be exempt) from surcharge land tax. These include:

• Australian-based developers who satisfy the requirements relating to the construction and sale of new homes;

• Developers of Build-to-Rent properties who satisfy the requirements relating to the construction of such properties; and

• Holders of subclass 410 (retirement) and 405 (investment retirement) visas.

What this means for foreign owners

There is no doubt that the proposed changes may dissuade some foreign investors from purchasing residential property in NSW. As for foreign persons who presently own property within the State, they may be incentivised to dispose their property so as to avoid increased tax liabilities. These reforms make it crucial for prospective investors who are considered “foreign persons” to obtain advice on the different concessions available.

That being said, the proposed changes are only effective if and when they are enacted as legislation. We will continue to keep you updated on this issue.   

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice beforetaking any course of action.*