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Update on foreign purchaser surcharges

By Shaun Backhaus, William Fettes, DBA Lawyers
March 24 2023
3 minute read
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Most jurisdictions in Australia have a form of foreign purchaser surcharge duty and/or land tax. The specific legislative definitions, as well as the practices and policies of the relevant state and territory revenue offices, can markedly differ between jurisdictions. While the surcharge rates vary, an additional 8 per cent duty applies in some jurisdictions, and the land tax surcharge can result in up to a 4 per cent surcharge (a recent increase having occurred in NSW).

Given that a trust may be established for a period of 80 years (or for an unlimited duration in South Australia) it is likely that the relevant laws and revenue office policies will change and advice given to a trust on these laws may not always be correct. It is important that the issue of whether the trust is a foreign trust is considered on an ongoing basis in relation to land tax and prior to any transaction that may incur land transfer duty.

Are foreign purchaser surcharges invalid due to international law?


It was recently announced by Revenue NSW that the surcharge purchaser duty and surcharge land tax provisions for New South Wales were inconsistent with international tax treaties entered into by the federal government with New Zealand, Finland, Germany and South Africa. See the announcement here.

Broadly, international tax treaties often include provisions that require the relevant parties not to subject the citizens of the other treaty party to taxes based on their status as a citizen or resident of the contracting party.

Citizens of those nations (and relevant entities) are no longer required to pay the NSW surcharge purchaser duty or surcharge land tax and refunds may also be available where any surcharges have already been paid.

While the Victorian State Revenue Office (SRO) is aware of the issue, it has confirmed that its position has not changed and that it will continue to apply the foreign purchaser surcharges as normal. See the SRO’s announcement here.

At the time of writing we are not aware of any announcements from revenue offices in other jurisdictions.

Should you choose to exclude foreign persons or not?

Many advisers continue to grapple with the issue of whether or not a new discretionary trust should be established with foreign person exclusions from the outset.

While the particular circumstances of the proposed trust must be considered, the key question to ask is whether it is expected that the trustee of the trust will purchase real estate. If the relevant parties are clear that they will never purchase real estate for the lifetime of the trust, it follows that there is little risk of surcharges applying.

However, if it is at all possible that the trustee would one day hold real estate, consideration should be given to having foreign persons excluded at commencement. Naturally, the parties must consider the plans for distributing from the trust and whether excluding foreign persons will prevent them from distributing to someone they might have wished to one day benefit from the trust.

Where exclusions are not made at commencement and a variation is required in the future, the costs of adding appropriate exclusions are likely to be much higher. Further, such a variation can also give rise to resettlement risks for a trust (e.g., for duty and capital gains tax purposes), although these risks can vary depending on the relevant jurisdiction.

Thus, while there may be an option to seek to address the issue with a future variation implemented prior to a proposed purchase, this is not typically the most optimal approach. Rather, it is usually more cost effective to establish a new trust with the relevant exclusions in place, rather than deal with the cost and complexity of a variation to an existing trust. Having separate landholder trusts can also provide land tax savings.

As these laws differ across the country, advisers should ensure that all relevant jurisdictions where property is planned to or might be acquired is specifically covered — i.e., on the basis of the relevant legislative provisions and definitions. Moreover, due of the differing statutory regimes, it is not a sound strategy to rely on the exclusions applicable for one jurisdiction being effective in other jurisdictions.


Foreign purchaser duty and land tax surcharges are relatively new taxes and we are continuing to see changes in relevant legislation and the administration of these laws by state and territory revenue offices. This continually changing landscape, and the differences between the various jurisdictions, means that advising on the situation remains a difficult exercise. Prudent advisers should be proactively warning their clients of the ongoing need to consider these laws to ensure that undue taxes do not arise.

The decision as to whether a new trust should exclude foreign persons at commencement will ultimately need to be made by the settlor/trustee, based on their goals and objectives for the trust. Where it is at all possible that real estate may be purchased by the trust, careful consideration should be given to appropriate exclusions being included and expert advice should be sought if there is any doubt.

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licensed financial adviser under the Corporations Act 2001 (Cth).

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