Refunds may be available to those charged surcharge purchaser duty or surcharge land tax in NSW

In brief: Revenue NSW has recently announced that stamp duty and land tax surcharges imposed on foreign persons that acquire or hold residential property in New South Wales are inconsistent with the international tax agreements that Australia has entered into with New Zealand, Finland, Germany and South Africa.

What is the effect of the announcement in New South Wales?

• Individuals that are citizens of New Zealand, Finland, Germany and South Africa will no longer be required to pay surcharge purchaser duty and surcharge land tax
• Surcharge purchaser duty or surcharge land tax liability for non-individuals, such as corporations, trusts or partnerships that arise because of an entity’s connection with these nations may also be affected by the international tax treaties
• Refunds may be available for surcharge purchaser duty or surcharge land tax, or any interest or penalty tax, paid on or after 1 July 2021
• Revenue NSW will proactively identify persons and transactions that may be eligible for refunds and make contact with those persons by phone or email to make arrangements for payment of the refunds
• A certified copy of a current passport or citizenship certificate must be provided, as well as bank account details
• Persons that are eligible for refunds can call 1300 139 814 or email duties@revenue.nsw.gov.au
• Refunds will be processed within 28 days.

Revenue NSW has not published any reasons for its view.

All of the other states and territories of Australia impose stamp duty or land tax surcharges (or both) on foreign persons that acquire or hold residential property in the relevant jurisdiction.

We will look at why Revenue NSW has decided that the surcharges are inconsistent with the international tax agreements of New Zealand, Finland, Germany and South Africa and the implications for the surcharges in the other states and territories.

Why has Revenue NSW found that the surcharges are inconsistent with only four international tax agreements?

Australia has international tax agreements with 46 countries, yet Revenue NSW has found that the international tax agreements of only four countries are applicable. 

The primary purpose of international tax agreements is to avoid tax being imposed on the same person or entity in respect of the same subject matter in the same period by both countries that are parties to the international tax agreement.

The way the agreements avoid double taxation is to allocate taxing rights to one country or to allow a credit against taxes payable in one country for taxes paid in the other country.

The international tax agreements are given effect in Australia by the International Tax Agreements Act 1953 (Cth). The provisions of that Act generally override any inconsistent provisions of Australia's domestic tax laws.

The inconsistency between the surcharges and the international tax agreements arises due to the provision of those agreements which prevents discrimination against nationals of another country. Only some of the international tax agreements have this provision and only some of those provisions apply to taxes imposed by states and territories.

As an example, article 24 of the New Zealand agreement relevantly provides:

1.     Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States.

…

4.     Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State in similar circumstances are or may be subjected.

…

7.     The provisions of this Article shall, notwithstanding the provisions of Article 2, apply to taxes of every kind and description imposed on behalf of the Contracting States, or their political subdivisions.

Article 24(1) prevents discrimination on the grounds of nationality by providing that nationals of one country may not be less favourably treated than nationals of the other country in the same circumstances. A national of a country is defined in Article 3(1) to mean an individual possessing the nationality or citizenship of that country and any company, partnership or association deriving its status from the laws in that country.

Article 24(4) prevents a country from giving less favourable treatment to an enterprise, which is wholly or partly owned or controlled, by one or more residents of the other country, than the country gives to other resident enterprises. For example, Australian companies owned or controlled by New Zealand nationals may not be given less favourable treatment than locally owned or controlled Australian companies.

Article 24(7) has the effect that Article 24 applies to taxes of every kind and description imposed by the contracting countries or their political subdivisions. The Article, therefore, applies to all federal taxes as well as taxes imposed by states and territories and local governments.

In Addy v Commissioner of Taxation [2021] HCA 34, the High Court held that the effect of the non-discrimination provision is that the discriminatory provisions of the domestic tax law are overridden. Instead of discriminatory provisions, the more advantageous domestic tax provisions for a country's own nationals become applicable.

Prior to 2003, Australia had only ever agreed to the inclusion of a non-discrimination provision in its international tax agreement with the United States, but that provision was not incorporated into Australian domestic law. 

Since 2003, a binding non-discrimination clause has been included in Australia's international tax agreements in response to a recommendation made by the Review of Business Taxation identifying Australia as the only OECD country which did not include a non-discrimination provision in its international tax agreements. Australia now has a binding non-discrimination provision in its agreements with the United Kingdom, Norway, Finland, Japan, South Africa, New Zealand, Chile, Turkey, India, Switzerland, Germany and Israel.

But many of those provisions only apply to taxes imposed by the Australian Government and do not apply to taxes imposed by the states and territories. Only the agreements with New Zealand, Finland, Germany, South Africa, Japan and Norway apply to taxes imposed by the states and territories. It is unclear why Japan and Norway are not included in the Revenue NSW announcement.

What is the position in the other jurisdictions? 

The only other jurisdiction that has published its position on the potential inconsistency of the surcharges and the international tax agreements is Victoria. The position of the State Revenue Office is that, while it is aware of the announcement made by Revenue NSW, it will continue to impose the surcharges. It has not published its reasons for that view.

The other jurisdictions have not published their position.

Given that the surcharges in all of the jurisdictions operate on substantially the same basis, and the international tax agreements with New Zealand, Finland, Germany, South Africa, Japan and Norway contain non-discrimination provisions which are materially the same and apply to taxes to imposed by states and territories, it is likely that the surcharges in all jurisdictions are inconsistent with the international tax agreements with New Zealand, Finland, Germany, South Africa, Japan and Norway. The effect of the inconsistency is that nationals of those countries, and the enterprises owned or controlled by them, should not be subject to the surcharges in any state or territory, and should be entitled to refunds for any surcharge, penalty tax and interest that has been paid.