What happens if a foreign person purchasing land in NSW does not pay surcharge purchaser duty?

As we all know, the Government loves their taxes – this article serves as a timely reminder for foreign persons purchasing residential-related property in NSW as Revenue NSW seem to be doing an audit of property transactions for outstanding liabilities for surcharge purchaser duty.

What is surcharge purchaser duty?

If you acquire an interest in land in NSW, you are usually required to pay an amount of tax on the purchase known as ‘transfer duty’ (formerly known as stamp duty).

If you are considered a ‘foreign person’ for the purposes of the Duties Act 1997 (NSW) (“Duties Act”), you are also required to pay surcharge duty on the dutiable value of the property you are purchasing (known as surcharge purchaser duty). This is in addition to the amount of transfer duty calculated on the acquisition. The rate of duty charged will depend on when the Contract was entered into, but is currently charged at 8%.

In NSW, you are considered a ‘foreign person’ if:

  1. You are not an Australian citizen, or
  2. You are a permanent resident or New Zealand citizen who holds a Special Category Visa Subclass 444, and have not lived in Australia for 200 days within the 12 months prior to your purchase.

What is the Purchaser/Transferee Declaration Form?

When you acquire an interest in land in NSW, you are required under Section 16A of the Duties Act to complete a Purchaser/Transferee Declaration Form (“the Form”). You will usually find your Solicitor or conveyancer will engage directly with you in relation to completing and executing the Form. Importantly, the information collected on the Form is used to report your liability for surcharge purchaser duty and surcharge land tax if you are a foreign person. The information is lodged with Revenue NSW (usually electronically) by your Solicitor or conveyancer prior to settlement.

Post-settlement audit by Revenue NSW

At some point in the future, the transaction may be audited by Revenue NSW, who cross-check the information in the Form against various other state and federal government databases. In particular, the information will be checked against the Department of Home Affairs.

If Revenue NSW identify anything that leads them to believe you might be liable for surcharge purchaser duty which has not been paid, they will commence an investigation under Part 9 of the Taxation Administration Act 1996 (NSW). If it is determined that you are liable for surcharge purchaser duty, Revenue NSW may issue a Notice of Assessment for payment of the surcharge duty, plus interest and possible penalty tax. You will be required to pay this extra amount, though Revenue NSW do have discretion to offer payment plans, stop interest accruing or reduce the amount of interest payable if you respond quickly to their notices.

Why is this important?

As a buyer, it is important for you to understand what surcharge purchaser duty is and whether it will be applicable to your purchase of property. Your Solicitor or conveyancer should provide you with advice in respect of surcharge purchaser duty prior to you executing the Contract. However, if you are going to purchase property in NSW and you fall within the definition of a foreign person as noted above, you should raise this with your Solicitor or conveyancer as soon as possible so your liability for surcharge purchaser duty can be confirmed early. You can therefore make an informed decision about whether to proceed with your purchase or not. Note, the definition of foreign person can vary from state to state, so you should seek and receive advice specific to the state you are purchasing property in.

This article has been produced in response to a surge in enquiries our firm has received relating to professional negligence claims against Solicitors and conveyancers where a purchaser has received a demand for surcharge purchaser duty from Revenue NSW, and who had not previously been advised about surcharge purchaser duty.

Issues we have identified during those enquiries include:

  1. Failure to provide advice in respect of surcharge purchaser duty specifically, both prior to the client(s) entering into the Contract and during the cooling-off period,
  2. Failure to confirm client(s) citizenship and residency status, noting the 200 day requirement for permanent residents and New Zealand citizens in NSW,
  3. Failure to provide correct advice in respect of another state’s foreign person and surcharge duty standards when operating in multiple jurisdictions,
  4. Insufficient verification of identity procedures, and
  5. In relation to the Purchaser Declaration Form (“the Form”):
    • Automatic assumption of citizenship and non-liability for surcharge purchaser duty when filling out the Form for a client,
    • Incorrectly filling out details despite receiving evidence or instructions to the contrary,
    • Failure to provide the Purchaser Declaration Explanatory Notes to their client to read prior to executing the Form,
    • Failure to provide advice in respect of the Form’s purpose and the information that the Form is gathering,
    • Failure to provide verbal confirmation of the information in the Form with the client, and
    • Client(s) being told to execute the Form with a lack of understanding about the declaration required of them.

How can we help?

If you or someone you know has received a demand for payment of surcharge purchaser duty in the above circumstances, you may be entitled to compensation. Please contact our firm on (02) 4926 2236 to speak with a Solicitor who can discuss the matter with you further.

By Christa Chapman,
Solicitor