Surcharge Purchaser Duty – What is it? Who does it apply to? Who might be liable in negligence?
1. Surcharge Purchaser Duty and Surcharge Land Tax: When will a solicitor, conveyancer or other advisor be negligent?
In 2021, Revenue NSW has significantly increased its investigation (and enforcement) of unpaid surcharge purchaser and land tax duties. If you have received a letter from Revenue NSW advising you are liable to pay Surcharge Purchaser Duty and/or Surcharge Land Tax, and were not previously aware that you were liable to pay the duty/tax, this may be due to negligence on the part of your Solicitor, conveyancer or other advisor.
In this article, we’ll explain what Surcharge Purchase Duty and Surcharge Land Tax are, and the types of situations in which the advice provided (or failure to advise) by a solicitor, conveyancer, or other advisor might amount to negligence.
2. What is Surcharge Purchaser Duty?
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).
3. What is Surcharge Land Tax?
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.
4. Who is classified as a “foreign person”?
Under the Act, an individual will be considered to be a “foreign person” unless they: –
- are an Australian citizen; or,
- 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.”
5. What about companies and trusts?
The definition of “foreign person” also includes some companies and trusts. Specifically, it includes: –
- A corporation in which an interest of 20% or more is owned by a foreign individual, corporation or government;
- A corporation in which 2 or more foreign individuals, corporations or governments own an interest of 40% or more;
- A trustee of a trust in which an interest of 20% or more is held by a foreign individual, corporation or government;
- 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.
6. Who might be liable in negligence if Surcharge Purchaser Duty is payable?
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;
- Conveyancers; and/or
7. When might an advisor be liable in negligence?
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.
8. How can we help?
If you or your client have received a letter from Revenue NSW, we can assist you by: –
- advising you as to your liability for Surcharge Purchaser Duty and Surcharge Land Tax (including potential exemptions and remissions for penalty tax and interest);
- preparing objections to any notice of assessment you have received;
- advising you in relation to potential claims in negligence against your solicitor, conveyancer or other advisor;
- formally making a claim upon your solicitor, conveyancer or other advisor, by the provision of a comprehensive letter of demand outlining your claim against them; and,
- acting on your behalf in legal proceedings against your solicitor, conveyancer or advisor if they (or their insurer) do not agree to pay the amount of the duty following their receipt of a letter of demand.