5% NSW Land Tax Surcharge by 2025: What Foreign Investors Must Know

If you’re a foreign property owner in New South Wales, the escalating land tax surcharges are something you can’t afford to overlook. With rates set to jump from 4% to 5% by next year, these yearly taxes are becoming a major consideration for any property portfolio. Don’t wait until the costs hit, learn how to manage these upcoming changes now and protect your investments from unexpected financial strain.

Recent Changes In Surcharge Rates

Land tax surcharges for foreign property owners in NSW have risen over time:

• 0.75% in 2017
• 2% in 2018
• 4% in 2023
• 5% starting in 2025

The land tax surcharge is an additional tax on top of the standard land tax, specifically for foreign property owners. These rates are added to your regular land tax and are based on the value of your property. This is not a one-time payment but an ongoing annual cost. With the rate set to hit 5% soon, it’s important to start planning now to manage these rising costs effectively.

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What You Need To Know About Land Tax Surcharges

1. How Surcharges Are Calculated

The surcharge is a percentage of your property’s value. For instance, if your property is worth $1 million and the surcharge rate is 4%, you’ll pay $40,000 in surcharge.

Here’s a simplified example of how to understand the surcharge increment.

Consider a property owner, Michael, with two residential properties:

• Property A: $600,000
• Property B: $600,000
• Total Land Value: $1,200,000

Current Surcharge Land Tax Calculation (2024):

Surcharge Rate: 4%

Surcharge Land Tax: $1,200,000 x 4% = $48,000

 

Increased Surcharge Land Tax Calculation in 2025:

Surcharge Rate Increase: 5%

Projected Surcharge Amount: $1,200,000 x 5% = $60,000

Hence,

The Additional Cost Starting in 2025: $60,000 – $48,000 = $12,000

 

Based on these calculations, Michael will pay $60,000 in surcharge taxes in 2025, an extra $12,000 per year. This increase may affect long-term property planning and investment strategies, requiring careful management.

Please note: This is a simplified example. Your actual overall tax may include other costs, such as regular land tax.

2. Possible Exemptions To The Surcharge

Some properties may be exempt from the surcharge:

• Principal Place of Residence: If you live in Australia, in the residence, for more than 200 days each year, you might qualify for an exemption.
• Commercial Residential Premises: Properties like hotels or student housing can be exempt if they meet specific requirements.
• Australian Developers: Developers building new homes for sale may apply for an exemption or refund within 10 years of buying the property.
• Build-to-Rent Properties: Properties built by Australian companies for renting can be exempt if they meet certain conditions.

3. Documentation For Exemptions

To apply for exemptions, you may need:

• Foreign Investment Review Board (FIRB) Approvals
• Management Agreements
• Occupancy Contracts

Make sure you have all the necessary documents to avoid delays.

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How To Prepare For The Surcharge

With the surcharge rate set to rise to 5% in 2025, it’s crucial to plan ahead:

• Review your finances: Assess how the increase in surcharge will affect your overall property expenses.
• Explore refinancing options: Consider refinancing your mortgage to manage increased costs more effectively.
• Understand exemption eligibility: Know the criteria and requirements for exemptions to avoid unnecessary expenses.
• Get expert help: Consult with a tax professional or legal adviser for personalised guidance on managing the surcharge.

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Other Upcoming Changes For Foreign Investors In 2025

• Increase in Foreign Resident Capital Gains Withholding (FRCGW): The FRCGW rate is currently 12.5% but is set to increase to 15% from 1 July 2025. This withholding tax applies when a foreign resident sells Australian real property valued at $750,000 or more. It represents an upfront payment towards the capital gains tax (CGT) liability.
• Removal of the FRCGW threshold: The existing $750,000 threshold for FRCGW will be removed. This change means that all property transactions involving foreign residents will now be subject to withholding requirements, regardless of the property’s value.
• Increase in foreign purchaser duty surcharge: The foreign purchaser duty surcharge is currently 8% but will increase to 9% from 1 January 2025. This is a one-time, upfront cost paid when purchasing residential property in NSW, calculated as a percentage of the property’s purchase price.

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Navigate Tax Changes With Confidence

Your success is our priority. We care deeply about helping you manage changes in surcharges. Our expert team is committed to finding the right home loan tailored to your unique needs and investment strategy. Reach out today at 1300 889 743 or fill in our free online assessment form and discover how our personalised service can make a difference in your investment journey.