Foreign Surcharges

Does foreign purchaser duty and land tax surcharge apply to SMSFs?

Yes, they generally do in states which choose to impose a surcharge on the duties payable when a ‘foreign’ entity purchases real property within the state.  It is important to note that these amounts are in addition to the usual rates of duty or land tax applied.

As of the 1^st July 2025 these were:

Each state or territory has its own definition of a ‘foreign person’ and in most states the surcharge only applies to residential property.

Where a client intends to purchase property in a state or territory via a superannuation fund  (whether or not a bare trust/ custodian arrangement is involved) and that state or territory applies a surcharge it will be the superannuation fund which is considered in terms of whether or not it constitutes a foreign person under that jurisdiction’s legislation.

If one or more of the members of the fund is a foreign person (usually including a temporary resident) then the surcharge would be expected to apply.

If no member of the fund is a foreign person, generally the trustee of the SMSF will not be deemed a foreign person. The position will be different in each state and territory depending on the way that particular jurisdiction treats a superannuation fund under their legislation.

In Victoria and the ACT a superannuation fund from which a foreign person may benefit (including a potential death benefit) is expected to be considered a foreign person. Such funds may need to permanently and irrevocably exclude all foreign beneficiaries to avoid surcharges. It is important to amend an existing deed before property is acquired and to ensure clients are aware that amendments cannot be back dated.  It is crucial to ensure the amendment to the trust deed will not be considered a resettlement which can trigger capital gains tax and potential loss of accumulated tax losses.

In other states and territories, the current view is that a superannuation fund will be treated as a fixed trust and so will only be considered a foreign entity if one or more of the members of the fund meets the definition of a foreign person under that particular jurisdiction’s legislation.

The following is based on NSW legislation but there are links to guides for each jurisdiction and a summary of the significant terms below.

Who is a foreign person?

A foreign person includes:

• an individual who is not ordinarily resident in Australia
• an individual, who is not ordinarily resident in Australia with their associates collectively holds a substantial interest of 20% or more in a corporation or a trust
• two or more persons, each of whom are not ordinarily resident in Australia with their associates collectively hold an aggregate substantial interest of 40% or more in a corporation or a trust

The term “ordinarily resident in Australia” refers to an individual who has resided continuously in Australia for at least 200 days prior to the relevant date, without any legal limitations on their period of stay. Visas such as work, business, visitor, or bridging visas typically impose time restrictions on an individual’s stay in Australia. By contrast, a permanent visa does not carry time constraints but requires the holder to have been present in Australia for a minimum of 200 days.

An Australian citizen is deemed to be ordinarily resident in Australia and never deemed to be a foreign person even if they are living overseas or have dual citizenships.

A substantial interest in a trust is defined as the beneficiary and their associates holding at least 20% of the income or property of the trust. An aggregated substantial interest of no less than 40% refers to combined interests in the income or property of the trust.

A person is considered to be a “foreign person” on the “relevant date” unless they are:

• an Australian citizen
• ordinarily resident in Australia including
  • a permanent resident of Australia, or the holder of a partner (provisional) visa (subclass 309 or 820)

and

• they have continuously been in Australia for 200 days before the relevant date

• a New Zealand citizen who holds a subclass 444 visa, who has lived in Australia for 200 continuous days or more prior to the relevant date

The relevant date for surcharge duty purposes is the date of the residential property acquisition and for surcharge land tax purposes the taxing date is the 31^st December.

Tip – An Australian permanent resident living overseas for more than 165 days in a calendar year (or 166 days in a leap year) may be subject to surcharge land tax for foreign persons. The Chief Commissioner can grant a discretion to waive the 200 continuous day requirement where the absence was exceptional and brief. A person has 60 days from the date of assessment to lodge an objection to seek the Commissioner’s discretion.

How does this apply to an SMSF?

Surcharge duty and surcharge land tax is imposed on a foreign person and the definition includes a trustee of a foreign trust.

The key issue is whether an SMSF qualifies as a “foreign trust”.

An SMSF member is a beneficiary of a trust. If any member is a foreign person with at least 20% beneficial interest, individually or with associates such as relatives, in the income or property of an SMSF the SMSF trustee will be subject to surcharge duty and surcharge land tax.

Most SMSFs consist of related family members who are associates of each other, so if any member is considered a foreign person, the whole fund may be subject to surcharge duty or surcharge land tax due to collective substantial interest.

What is residential land?

Residential land includes:

• properties used for residential use
• individual strata units used for residential purposes
• vacant land that is zoned or designated for residential use

Are there any exemptions?

Residential land excludes primary production land. The surcharge is calculated on the residential portion of a property which is used for both commercial and residential use.

Exemptions from surcharge land tax and surcharge duty may apply to foreign persons who own residential property utilised for commercial purposes. Qualifying uses include hotels, bed and breakfast accommodation, aged care facilities, student accommodation, hostels and boarding houses, residential houses used as a hairdressing salon or in a medical practice, and caravan parks.

Who pays the surcharge tax?

The SMSF trustee is liable to pay surcharge duty or surcharge land tax.

How is land tax calculated?

Land tax is applied to the unimproved value of all landholdings held as at 31^st December (taxing date) each year. The NSW Valuer General determines the unimproved value on the 1^st July each year i.e. if the taxing year ends on 31^st  December 2024 the Valuer General provides a valuation on the 1^st July 2024. Revenue NSW uses a 3-year average to calculate applicable land tax. An SMSF can access the land tax threshold which is $1,075,000 in the 2025 calendar year. Land tax applies to the land value above the threshold. Land tax is not prorated which means if the land is sold after 31^st December, say the 2^nd February, land tax applies in full.

From 1^st January 2025 the land tax thresholds will be fixed.

How is surcharge land tax calculated?

It is additional to land tax. Unlike land tax, surcharge land tax has no threshold and thus is applied to the entire unimproved land value to residential property owned by foreign persons.

How is surcharge duty tax (stamp duty) calculated?

It is an additional tax to transfer duty tax (stamp duty). Property Stamp Duty Rates

Surcharge duty is payable by foreign persons when they acquire residential property. Generally, the date of liability is the date when the contract is exchanged and where there is no sale contract the execution date is the date when the transfer instrument is received by Revenue NSW.

Surcharge duty is calculated on the purchase price or the value of the property whichever is the greater. A valuation may be required when:

• no consideration is paid
• both the buyer and the seller are related or associated parties
• there is no selling agent
• the chief commissioner is not satisfied that parties are dealing with each other at arm’s length

Surcharge duty tax is 9% from 1^st January 2025.

Hint – a premium duty rate applies to residential properties worth more than $3.721 million from 1 July 2025 to 30 June 2026.

Guide to the state and territories surcharge imposed on foreign owners when purchasing property and when paying land tax.

Summary of significant terms

* All Freehold land re: surcharge land tax and residential for foreign acquirer duty

** Residential land acquired on or after 1 July 2022 re: foreign investor land tax surcharge and foreign investor duty surcharge is assessed on residential and primary production land

Australian Government banning foreign purchases of established dwellings

The Albanese government has put a hold on foreign purchase of established residential homes. The ban does not affect permanent resident or New Zealand citizens.  The government put the ban in place from 1 April 2025 until the 31^st March 2027 and is contemplating extending the ban beyond this date.

Key Takeaways for Foreign Surcharges on SMSF Properties

• Surcharge land tax and surcharge purchaser duty can result in significant state taxes
• An SMSF can be a foreign trust subject to the foreign surcharge taxes
• In most states the beneficiaries of an SMSF are the members and not contingent death benefit dependants
• A foreign person in relation to a SMSF can be an SMSF member
• An SMSF member who is not ordinarily resident in Australia may trigger foreign surcharge taxes when purchasing residential property in Australia
• Before purchasing property in an SMSF check the specific state legislation to ensure the fund does not inadvertently trigger the surcharge taxes