Commencing from the 2017 land tax year, foreign persons will be liable to pay an additional land tax surcharge of 0.75% on residential land owned in NSW. This surcharge will first apply to foreign persons who owned residential land as at 31 December 2016.

Who is a ‘foreign person’?

A ‘foreign person’ refers to the same definition used for FIRB purposes, as defined in the Foreign Acquisitions and Takeovers Act 1975. Typically, the main inclusions are:

  1. an individual not resident in Australia; or
  2. a corporation, trust or general partner of a limited partnership for which either:
    • a non-resident individual, foreign corporation or foreign government has a substantial interest (usually 20% interest); or
    • two or more of the above hold an aggregate substantial interest (at least 40% interest); or
  3. a foreign government or another entity through which a foreign government has a qualifying substantial interest.

Note: Australian listed corporations and trusts should ignore unrelated foreign interests of less than 5% when applying the aggregate substantial interest test (2.b. above).

Calculation and application of the land tax surcharge

The land tax surcharge will be calculated using the same ‘taxable value’ of the residential land that is also used to calculate the general land tax liability. However, unlike the general land tax liability, no tax-free threshold will apply when calculating the land tax surcharge and will therefore be calculated as 0.75% of the entire taxable value of the residential land. This means that foreign persons can be liable for the land tax surcharge even where they do not pay general land tax - for example if the aggregate taxable value of their residential land was less than $549,000 as at 31 December 2016 (the 2017 tax-free threshold for general land tax).

Foreign persons will only be liable to the land tax surcharge to the extent of their proportional interest in residential land, such as if they hold residential land jointly with others. If a foreign person holds an indirect interest in residential land, then tracing through multiple entities (companies and trusts) will be required to determine whether the foreign person has an aggregate substantial interest and whether the ultimate landholder is liable for the land tax surcharge equal to the foreign person’s proportional interest.

To the extent the foreign person uses the residential land for non-residential purposes then the land tax surcharge will not apply. This means that for land/buildings that have both a residential and commercial purpose, apportionment will be required to calculate the land tax surcharge applicable to the residential proportion.


Whilst the ‘principal place of residence’ exemption will not apply with respect to a foreign person’s liability to the land tax surcharge, there may be other exemptions that may apply - for example to residential parks, retirement villages and primary production land.

Unlike Victoria, the NSW regime does not offer an exemption for large-scale developers who can demonstrate that their activities contribute to the economy and should otherwise be exempt from the land tax surcharge.

Default in paying land tax surcharge

In situations where a foreign person defaults in paying its land tax surcharge liability, it is important to note that the Commissioner can require the following entities to pay the unpaid land tax surcharge:

  • if the defaulting foreign person owns residential land jointly: the other joint owners, whether or not they are Australian or a foreign person; and
  • if the defaulting foreign person is a trust beneficiary: the trustee of a trust.