Surcharge Purchaser Duty – What is it? Who does it apply to? Who might be liable in negligence?

Surcharge Purchaser Duty is an additional duty payable by foreign purchasers of residential land in New South Wales. If you are classified as a “foreign person” for the purposes of the Duties Act 1997 (NSW) (Act), you must pay a surcharge (currently 8%) on the taxable value of any residential land you buy.

Surcharge Purchaser Duty is payable in addition to the usual transfer duty payable by purchasers of residential property (formerly known as stamp duty). Liability for Surcharge Purchaser Duty is assessed as at the date of the transaction (i.e. the date of the contract).

In New South Wales, if you are classified as a “foreign person” for the purposes of the Act, you must also pay a land tax surcharge (currently 2%) on the taxable value of all residential land you own as at midnight on 31 December in each year.

Under the Act, an individual will be considered to be a “foreign person” unless they: –

1. are an Australian citizen; or,
2. are “ordinarily resident in Australia” (defined to mean a person who has lived in Australia for more than 200 days in the 12 months immediately preceding the purchase date) and either: –

• • are a New Zealand citizen who holds a subclass 444 Visa; or,
  • are a permanent resident of Australia.

Temporary residents whose stay in Australia is limited by time (for example, those with temporary work visas) are not considered to be citizens or permanent residents and are therefore considered to be “foreign persons.”

The definition of “foreign person” also includes some companies and trusts. Specifically, it includes: –

1. A corporation in which an interest of 20% or more is owned by a foreign individual, corporation or government;
2. A corporation in which 2 or more foreign individuals, corporations or governments own an interest of 40% or more;
3. A trustee of a trust in which an interest of 20% or more is held by a foreign individual, corporation or government;
4. A trustee of a trust in which 2 or more foreign individuals, corporations or governments hold an interest of 40% or more.

Discretionary trusts are specifically targeted. Where a trustee of a discretionary trust purchases residential property in NSW, the trustee will be liable to pay Surcharge Purchaser Duty unless the trust deed both: –

• prevents a foreign person from being a beneficiary; and,
• prevents the trustee from amending the trust deed to include a foreign beneficiary.

Anyone providing advice to purchasers, or otherwise acting for them in relation to the purchase of residential property in NSW, should be careful to familiarise themselves with the circumstances in which a purchaser will be liable for Surcharge Purchaser Duty.

Depending upon the particular circumstances, any of the following may potentially find themselves liable in negligence where a purchaser finds themselves unexpectedly liable for Surcharge Purchaser Duty: –

• Mortgage brokers;
• Buyers agents;
• Solicitors;
• Conveyancers; and/or
• Accountants.

Some of the circumstances in which an advisor might have acted negligently include: –

• where a client was not provided with any advice regarding Surcharge Purchaser Duty;
• where a client was not provided with advice regarding Surcharge Purchaser Duty until after the expiration of the cooling off period;
• where a client was incorrectly advised that Surcharge Purchaser Duty would not be chargeable on their purchase of residential property;
• where a client received advice on the structure of the transaction, in circumstances where an alternate structure could have been used such that Surcharge Purchaser Duty would not have been chargeable (for example, where the property could have been purchased solely in the name of a spouse that is an Australian citizen)
• where an advisor recommended (or failed to advise against) the purchase of residential land in the name of a trust, without confirming that a foreign person cannot be a beneficiary of the trust under the terms of the trust deed;
• where a mortgage broker failed to advise of a couple’s ability to obtain finance solely in the name of one individual;
• where a purchaser declaration form has been pre-filled by a solicitor or conveyancer, without ensuring their client understands the nature of the document they are being asked to sign.

Whether an advisor has acted negligently will depend upon the particular circumstances of each case.