Overview
Australia’s international tax treaties prohibit discrimination of domestic taxation based on the tax residency of the other treaty country. Arguably, these non-discrimination articles are not limited to Federal taxes and apply to State and Territory taxes, such as foreigner duty surcharges and foreigner land tax surcharges.
The Commissioner of State Revenue (NSW) had accepted the tax treaties with Norway, Finland, Japan, South Africa, New Zealand, India, Switzerland, and Germany were invalid and were not imposing and were reimbursing paid foreigner duty surcharges and foreigner land tax surcharges.
Other States and Territories have not accepted that the foreigner duty surcharges and foreigner land tax surcharges were invalid.
On 8 April 2024, the Federal Government enacted Treasury Laws Amendment (Foreign Investment) Bill 2024 (Cth) which retrospectively amended the International Tax Agreements Act 1953 (Cth) from 1 January 2018 so the foreigner duty surcharges and foreigner land tax surcharges on a foreign person are not subject to and invalid under the discrimination article.
Introduction to Foreigner Duty Surcharges and Land Tax Surcharges
Australia has given the force of law to non-discrimination articles contained in its international tax treaties with the United Kingdom, Norway, Finland, Japan, South Africa, New Zealand, Chile, Turkey, India, Switzerland, Germany, and Israel.
The New Zealand, Finland, Germany, and South Africa agreements contain non-discrimination clauses that expressly refer to all Australian taxes and arguably covers State taxes. It is considered the non-discrimination articles in the other jurisdictions, although not expressed so clearly, also covers State taxes.
On 21 February 2023, the Commissioner of State Revenue (NSW) (CSR (NSW)) announced that the Surcharge Purchaser Duty (NSW) and the Surcharge Land Tax were inconsistent with international tax treaties entered into by the Federal Government with New Zealand, Finland, Germany and South Africa and would immediately cease to be imposed on these individual citizens and their affiliated corporations, trusts or partnerships and would be refunded on surcharges incurred on or after 1 July 2021:
It has been determined that NSW surcharge provisions are inconsistent with international tax treaties entered into by the Federal Government with New Zealand, Finland, Germany and South Africa. These international tax treaties are related to taxation and other matters and have been given the force of federal law.
Effective immediately, individuals that are citizens of the nations concerned purchasing residential-related property or land in their own capacity will no longer be required to pay surcharge purchaser duty or surcharge land tax.
Surcharge purchaser duty or surcharge land tax liability for non-individuals, such as corporations, trusts or partnerships that arises because of an entity’s affiliation with these nations, may also be affected by the international tax treaties.
Refunds may be available for purchasers/transferees, and landowners, from the nations concerned who paid surcharge purchaser duty or surcharge land tax on or after 1 July 2021.
https://www.revenue.nsw.gov.au/news-media-releases/international-tax-treaties
On 29 May 2023, the CSR (NSW) updated the list of treaty countries to include India, Japan, Norway, and Switzerland. The CSR (NSW) would maintain the surcharge for other foreign persons and affiliated corporations, trusts, or partnerships.
Surcharge purchaser duty and surcharge land tax – international tax treaties update
29 May 2023
On the 21 February 2023, Revenue NSW communicated that NSW surcharge provisions are inconsistent with a number of international tax treaties entered into by the Federal Government.
India, Japan, Norway and Switzerland have since been identified as additional nations that have international tax treaties with the Federal Government which may affect surcharge purchaser duty and surcharge land tax liability.
Individuals that are purchasing residential-related property or land in their own capacity will no longer be required to pay surcharge purchaser duty or surcharge land tax if they are a citizen of one of the following nations:
New Zealand
Finland
Germany
India
Japan
Norway
Switzerland
South Africa
Surcharge purchaser duty or surcharge land tax liability for non-individuals, such as corporations, trusts or partnerships that arises because of an entity’s affiliation with these nations, may also be affected by the international tax treaties.
The refund period has now been extended. Refunds may be available for purchasers/transferees, and landowners, from the nations concerned who paid surcharge purchaser duty or surcharge land tax on or after 1 January 2021 (previously 1 July 2021).
Surcharge purchser duty and surcharge land tax - international tax treaties update
The CSR (NSW) has not published the technical basis for the position.
On 21 February 2023, the Commissioner of State Revenue (Vic) (CSR (Vic)) announced the SRO was considering the impactions of the announcement on Foreign Purchaser Additional Duty (Vic) and Absentee Owner Land Tax Surcharge (Vic):
Taxes on foreign property investors
Published on 21 February 2023
The SRO acknowledges the recent announcement made by Revenue NSW regarding restrictions on the imposition of their foreign owner surcharge and surcharge purchaser duty for residents of South Africa, New Zealand, Finland and Germany.
The SRO is considering the implications of the announcement made by Revenue NSW and will provide updates as required.
Last modified: 22 February 2023
Taxes on foreign property investors | State Revenue Office (sro.vic.gov.au)
On 15 March 2023, the CSR (Vic) announced that there would be no change to the Victorian position on Foreign Purchaser Additional Duty (Vic) and Absentee Owners Land Tas Surcharge (Vic).
Taxes on foreign property investors
Published on 15 March 2023
The SRO is aware of the announcement made by Revenue NSW in February 2023 regarding the imposition of the NSW foreign owner surcharge and surcharge purchaser duty for residents of South Africa, New Zealand, Finland and Germany.
The position in Victoria has not changed and the SRO will continue to apply the Victorian provisions to all foreign purchasers and absentee owners.
Last modified: 15 March 2023
Taxes on foreign property investors | State Revenue Office (sro.vic.gov.au)
Commissioners of other States and Territories do not appear to have made any public statements.
Scope of International Tax Agreements Act 1953 (Cth)
Australia has given the force of law to non-discrimination articles contained in its international tax treaties with the United Kingdom, Norway, Finland, Japan, South Africa, New Zealand, Chile, Turkey, India, Switzerland, Germany and Israel.
These Australia's international tax treaties contain a non-discrimination provision that provides that a national of the other country that is a party to the treaty shall not be subjected in Australia to any Commonwealth tax which is more burdensome that that imposed on an Australian resident. For example, the Australian-United Kingdom international tax treaty relevantly states:
ARTICLE 25
NON-DISCRIMINATION
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 other or 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.
2 The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities in similar circumstances.
3 Except where the provisions of paragraph 1 of Article 9, paragraph 8 or 9 of Article 11, paragraph 6 or 7 of Article 12, or paragraph 4 or 5 of Article 20 of this Convention apply, interest, royalties and other disbursements paid by an enterprise of a Contracting State to a resident of the other Contracting State shall for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State.
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 other or 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.
5 Nothing contained in this Article shall be construed as obliging a Contracting State to grant to individuals who are residents of the other Contracting State any of the personal allowances, reliefs and reductions for tax purposes which are granted to individuals so resident.
6 This Article shall not apply to any provision of the laws of a Contracting State which:
(a) is designed to prevent the avoidance or evasion of taxes;
(b) does not permit the deferral of tax arising on the transfer of an asset where the subsequent transfer of the asset by the transferee would be beyond the taxing jurisdiction of the Contracting State under its laws;
(c) provides for consolidation of group entities for treatment as a single entity for tax purposes provided that Australian resident companies that are owned directly or indirectly by residents of the United Kingdom can access such consolidation treatment on the same terms and conditions as other Australian resident companies;
(d) provides deductions to eligible taxpayers for expenditure on research and development; or
(e) is otherwise agreed to be unaffected by this Article in an Exchange of Notes between the Government of Australia and the Government of the United Kingdom.
7 The provisions of this Article shall apply to the taxes which are the subject of this Convention.
[emphasis added]
Australia's international tax treaties with New Zealand, Finland, Germany, and South Africa provide that the non-discrimination provision applies to every tax, not just Commonwealth Taxes. For example, the Australian-New Zealand international tax treaty relevantly states:
ARTICLE 24
NON-DISCRIMINATION
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.
2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities in similar circumstances. This provision shall not be construed as obliging a Contracting State to grant to individuals who are residents of the other Contracting State any of the personal allowances, reliefs and reductions for tax purposes which are granted to its own residents.
…
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.
[emphasis added]
In Addy v FCT [2021] HCA 34 (3 November 2021), the High Court of Australia considered the non-discrimination article in the Australian-United Kingdom international tax treaty in respect of the Commonwealth 'backpacker tax' and found the tax to be discriminatory and had the effect of disapplying proscribed discriminatory taxation or connected requirements and instead applyied the more favourable ones.
The High Court of Australia and the Australian Taxation Office accepted that Addy v FCT applies to both forms of non-discrimination articles equally (Australian Taxation Office, High Court decision in the matter of Addy v Commissioner of Taxation (QC 67247, 3 November 2021). High Court decision in the matter of Addy v Commissioner of Taxation (QC 67247)
On 7 February 2024, the Federal Government introduced the Treasury Laws Amendment (Foreign Investment) Bill 2024 (Cth) with the stated purpose:
Treasury Laws Amendment (Foreign Investment) Bill 2024 – International tax agreements
The Foreign Investment Bill amends the Agreements Act to clarify any uncertainty associated with the interaction between certain taxes, such as foreign investment fees and similar state and territory property taxes, and double tax agreements implemented domestically by the Agreements Act.
The amendment ensures that such taxes prevail in the event of any inconsistency with the Agreements Act. The amendment applies retrospectively for a period of six years. This time limitation broadly aligns with statute of limitation periods under state and territory legislation.
Date of effect
The Foreign Investment Bill applies to taxes (other than income taxes and fringe benefits tax) payable on or after 1 January 2018 and taxes (other than income taxes and fringe benefits tax) payable in relation to tax periods (however described) that end on or after 1 January 2018.
Treasury Laws Amendment (Foreign Investment) Bill 2024 (Cth)
The amendment includes in section 5 International Tax Agreements Act 1953 (Cth) the following clause:
(3) The operation of a provision of an agreement provided for by subsection (1) is subject to anything inconsistent with the provision contained in a law of the Commonwealth, or of a State or Territory, that imposes a tax other than Australian tax, unless expressly provided otherwise in that law.
From 1 July 2015, Victoria was the first State or Territory to enacted foreign duty surcharge. From 1 January 2016, New South Wales was the first State or Territory to enact foreign land tax surcharge. The States and Territories generally have a 5-year re-assessment period (e.g. sec. 9 Taxation Administration Act 1997 (Vic); sec. 9 Taxation Administration Act 1996 (NSW)).
The Treasury Laws Amendment (Foreign Investment) Bill 2024 (Cth) is retrospectively effective from 1 January 2018 to cover the 5-year re-assessment period.
Accordingly, subsisting refund applications, objections, and legal proceedings on the grounds of the invalidity of a foreign duty surcharge or a foreign land tax surcharge are retrospectively defunct.