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In an important development, Revenue NSW has changed its policy in relation to foreign surcharge purchaser duty and surcharge land tax. This change comes as a result of a review determining that the New South Wales foreign surcharge provisions are inconsistent with international tax treaties entered into by the Federal Government and certain countries, being New Zealand, Finland, Germany and South Africa.

The difficulty for Revenue NSW arose due to Federal legislation giving force to international tax treaties entered into with these countries. The broad wording used in the legislation states that a country that is party to the treaty shall not put in place any tax that is more burdensome on foreigners than that imposed on an Australian resident. In some cases, the types of taxes are expressly stated and limited to common examples such as income tax and fringe benefits tax. However, the treaties entered into between Australia and each of New Zealand, Finland, Germany and South Africa go further and provide for this non-discrimination to apply to taxes of all kinds and all descriptions.

As a result of the review, Revenue NSW has published on 21 February 2023 a notification stating that:

“Effective immediately, individuals that are citizens of the nations concerned purchasing residential-related property or who own land in their own capacity will no longer be required to pay surcharge purchaser duty and surcharge land tax.”

The application also flows to non-individuals such as corporations, trusts or partnerships and tax liabilities that may arise because of an entity’s affiliation with any of those nations specified.

Refunds for any party affected will be available and Revenue NSW has provided general information as well as a FAQs sheet, which provides guidance on how to apply for a refund, who is entitled to a refund and general questions that apply to the change in policy.

The policy reversal by Revenue NSW is likely to breathe fresh air into the debate on housing affordability and the ability for developers to deliver sites given the impact that the number of additional costs have had on the developer and investor markets. Whilst there are some exemptions or temporary reductions in the surcharge costs for developers, these exemptions are limited. When taken together with the increased surcharge costs and change in the housing market conditions, particularly over the last 18 months, a number of internationally backed developers have either ceased operating in Australia altogether or significantly wound back their development activities as a result of the increasing costs impacting the industry. This has led to flow on challenges with housing supply in general and its impacts within the rental market.

This policy change will deliver benefits to the investors based in the four named countries. Any movement in surcharges and costs that supports housing affordability and the injection of capital into the housing market, will undoubtedly be welcomed.

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