NSW Surcharge Duty: The Hidden Cost for Foreign Purchasers

If you are purchasing residential related property in New South Wales and are considered to be a ‘foreign person’ as per the definition of the Duties Act 1997 (NSW) (the Act), you must pay a surcharge on the taxable value of any residential land you buy.

It is therefore critical for all parties looking to purchase residential property to satisfy themselves in respect of their liability for Surcharge Purchaser Duty.

In this article, we will explain the scenarios whereby Surcharge Purchaser Duty will arise, along with the current rates and exemptions. 

Who pays it?

Surcharge Purchaser Duty is an additional duty payable by foreign purchasers of residential related property in New South Wales. It is paid in addition to ordinary transfer duty (also commonly known as stamp duty).

Generally, you are not considered to be a foreign person if you are:

(1) an Australian Citizen; or

(2) an individual who is:

a. an ‘ordinarily resident’ in Australia; or

b. an exempt permanent resident.

To be considered an ‘ordinarily resident’ in Australia, an individual will be required to meet the following two (2) criteria:

(1) the individual is in Australia and the individual’s continued presence in Australia is not subject to any limitation as to time imposed by law (i.e. a permanent resident of Australia or the holder of a partner (provisional) visa (subclass 309 or 820); and

(2) the individual has been in Australia for at least 200 days within the 12 months prior to the Contract date.

To be considered an ‘exempt permanent resident’, an individual will be required to meet the following criteria:

(1) be a permanent resident of Australia as at the date of entering into a Contract;

(2) live in the Property being purchased continuously for at least 200-days within 12-months from the date of the Contract;

(3) live in the Property as their principal place of residence; and

(4) purchase the Property as an individual and not as a company or trust.

If none of the above criteria can be satisfied and you are deemed to be a ‘foreign person’ by Revenue NSW, you will be liable to pay Surcharge Purchaser Duty at the same time as stamp duty is paid.

Temporary residents whose stay in Australia is limited by time (e.g. temporary work visas) generally do not meet the above criteria and are therefore considered to be “foreign persons” and subject to Surcharge Purchaser Duty.

Foreign corporations and trusts are also liable to pay Surcharge Purchaser Duty. A corporation will be considered foreign if a foreign person, corporation or government holds a substantial interest or aggregate interest in the corporation. A substantial interest is defined as at least 20% of the entity and an aggregate interest is where two or more foreign individuals hold a combined interest of at least 40% of the entity.

Residential Related Property

Surcharge Purchaser Duty is payable on transactions relating to ‘residential related property’.

Residential related property refers to residential land in New South Wales as well as options to purchase residential land.

Pursuant to the Act, residential land is defined to include:

1. a parcel of land with:

• A single dwelling or one flat, or

• A single dwelling or one flat and a shop, or

• A building under construction intended to be a single dwelling or flat (or a dwelling/flat and a shop), or

2. a strata lot lawfully occupied or suitable for lawful occupation as a separate dwelling, or

3. a land use entitlement that allows occupancy of a building (or part of it) as a separate dwelling, or

4. vacant land zoned or designated for residential or mainly residential use under relevant planning laws.

Rate of Surcharge Purchaser Duty

Surcharge Purchaser Duty is calculated on the dutiable value of the Property (the greater of the purchase price or value).

Surcharge Purchaser Duty is currently charged at 8% on the taxable value of the land in question.

From 1 January 2025, this amount is increasing to 9% reflecting a significant cost for purchasers deemed to be foreign persons.

Other Exemptions

There are other certain exemptions to the payment of Surcharge Purchaser Duty.

New Zealand citizens who hold a special category visa (subclass 444) and have been in Australia for at least 200 days within the 12-month period before the date of the Contract are considered exempt from Surcharge Purchaser Duty.

Australian based developers that are foreign persons may also be exempt from Surcharge Purchaser Duty subject to the Chief Commissioner being satisfied that a new home has been constructed on the land and then subsequently sold to a person not associated with the developer or the land has been subdivided for the purpose of new home construction.

Prior to 8 April 2024 citizens from Finland, Germany, India, New Zealand, Norway, South Africa and Sweden were not subject to Surcharge Purchaser Duty due to international tax treaties. However, since 8 April 2024 this exemption no longer applies, and citizens of these countries will be liable for surcharge duty unless they meet one of the exemptions requirements outlined above.

If you are otherwise unsure on your liability for Surcharge Purchaser Duty or require more information on the above, please contact Jacob Mitchell at jmitchell@marsdens.net.au or by phoning 02 4626 5077.

The contents of  this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.