Key takeaways

• The High Court's decision removes any ambiguity as to the validity of surcharge land taxes or additional obligations imposed on foreign landowners by the State and Territory Revenue Offices, despite the existence of non-discrimination clauses in international tax treaties which Australia has concluded which require foreign taxpayers to be subject to not more burdensome taxation than Australian taxpayers.
• The decision also suggests that any surcharge rates or additional obligations in relation to other types of taxes that may be imposed by the States and Territories on foreign persons (for example, surcharge stamp duty) may be valid.
• Currently:
  • The States of Victoria and Queensland impose surcharge land tax on foreign or "absentee" entities in respect of all land owned in those states.
  • The States and Territories of New South Wales, Australian Capital Territory and Tasmania impose surcharge land tax in respect of residential land only.
• Foreign entities who purchase or own Australian land should ensure they keep up to date with their obligations in respect of foreign surcharge State and Territory taxes, including specific notification requirements required by some Revenue Offices.

If you require any advice regarding compliance with these obligations, or advice more generally as to surcharge land taxes and stamp duty, please let us know.

In more detail

Background

The case concerned two separate sets of proceedings:

• The first concerned the imposition of foreign surcharge land tax in Queensland on two Australian incorporated companies, G Global 120E T2 Pty Ltd and G Global 180Q Pty Ltd ("GG Entities"), which held Queensland land on trust for separate unit trusts ("GG Trusts"). The shares in the GG Entities and units in the GG Trusts were ultimately owned and controlled by a German parent company. Accordingly, the GG Entities sought to appeal against surcharge rates imposed due to their foreign status in respect of land tax assessments for the 2020-2021 and 2021-2022 financial years.
• The second concerned the imposition of absentee owner surcharge land tax in Victoria on Mr Francis Stott, a citizen of New Zealand. Mr Stott sought to appeal against the assessments for the 2016 to 2024 land tax years and also the requirement to lodge a notice of his status as an absentee owner with the Victorian State Revenue Office. 

Legislative framework

Relevantly, Germany and New Zealand both have bilateral treaties with Australia ("International Treaties") which contained non-discrimination clauses prohibiting the imposition of 'any taxation or any requirement connected therewith which is other or more burdensome' than those to which nationals or similar entities of Australia are subjected, on nationals of or entities controlled by residents of Germany and New Zealand ("Non-Discrimination Clauses"). These clauses were said to apply to 'taxes of every kind and description.' The International Treaties were given force of law by section 5(1) of the International Tax Agreements Act 1953 (Cth) (ITAA).

Under the Land Tax Act 2010 (Qld) (QLTA), there is an additional 3% surcharge land tax rate imposed in addition to general land tax rates on all taxable land owned by absentee individuals, foreign corporations, and trustees of foreign trusts. As both "foreign corporations" and "trustees of foreign trusts" within the meaning of the QLTA, the GG Entities were assessed to foreign surcharge land tax.

Under the Land Tax Act 2005 (Vic) (VLTA), an "absentee owner" of land is required to lodge a written notice of their status as absentee owner with the State Revenue Office, Victoria. There is also an additional 4% surcharge land tax imposed in addition to general land tax rates on all taxable land owned by absentee owners. As an owner of land who was neither an Australian citizen nor Australian resident, and was absent from Australia between 2015 and 2023, Mr. Stott was an "absentee owner" for the purposes of the VLTA.

2024 amendments to the ITAA

On 8 April 2024, section 5(3) was inserted into the ITAA by the Treasury Laws Amendment (Foreign Investment) Act 2024 (Cth) ("2024 Amendment"). The 2024 Amendment confined the effect of the Non-Discrimination Clauses to Australian tax, which is relevantly defined as income tax and fringe benefits tax. This amendment effectively excluded the operation of the International Treaties upon other taxes imposed by the Commonwealth, or the States or Territories, and did so retroactively in relation to taxes payable on or after 1 January 2018.

Decision

The High Court found the following:

• Prior to the 2024 Amendment, the surcharge land tax imposed by the QLTA and VLTA on foreign and absentee landowners respectively and additional reporting requirements imposed on absentee owners by the VLTA were inoperative due to their inconsistency with the ITAA, which gave legal effect to the Non-Discrimination Clauses.
• The 2024 Amendment was valid and supported by the external affairs power under the Constitution as section 5 of the ITAA when read in its amended form is not substantially inconsistent with the International Treaties it seeks to implement despite limiting their domestic effect to Australian tax.
• The 2024 Amendment was a valid retroactive amendment to section 5 of the ITAA such that the taxes imposed by the QLTA and VLTA at additional surcharge rates that were previously inoperative are revived and payable.

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Prepared with assistance from Nicholas Tse, Associate.