NSW Land Tax changes | Foreign Person Beneficiary Exclusion

If you’re a foreign person who owns residential land in NSW, you must pay a land tax surcharge in addition to any land tax you may already pay.

The surcharge rate is:

  • 0.75 per cent from the 2017 land tax year, and
  • two per cent from the 2018 land tax year onwards.

You must pay the surcharge on the taxable value of all residential land that you own as at 31 December each year.

principal place of residence exemption may apply to you from the 2018 tax year. It applies for

  • one year
  • one residential property, and
  • residence requirements must be met.

You may be required to pay the surcharge even if you do not pay land tax.

The surcharge is assessed in relation to each parcel of residential land and is proportional to ownership.

There are no joint assessments and secondary deductions don’t apply.

There is no tax-free threshold applicable to the surcharge.

Surcharge purchaser duty also applies to the purchase of residential property and other dutiable transactions defined under the Duties Act.

Absent other factors, meeting the above requirements should be sufficient to prevent a discretionary trust from being liable for surcharge duty and land tax payable by a foreign trustee.

The Act provides for exemptions and refunds when discretionary trusts are amended before the end of 2020 (i.e. by 31 December 2020). The transitional provisions also have a retrospective effect on the commencement of the surcharge purchaser duty on 21 June 2016.

As a result, any trustee that has incurred a duty liability prior to the commencement of this Bill may have an opportunity to obtain relief by way of refund.

What do you need to do?

  1. Determine whether your discretionary trust owns residential land in NSW.
  2. If so, contact us to review your discretionary trust deed to determine if you may be inadvertently exposed to the abovementioned surcharges.

If your discretionary trust is exposed to the abovementioned surcharges, we can coordinate with you to determine whether or not your trust deed should be amended to exclude foreign persons as beneficiaries.

Importantly, consideration must be given to whether this amendment is workable, as it would mean that thereafter your discretionary trust can never distribute to a foreign person. This may be problematic if you or other potential beneficiaries are not Australian citizens and reside overseas (or may reside overseas in the future).

Further consideration will also need to be given as to whether such an amendment causes broader tax or duty implications for the trust (ie. such a those resulting from a re-settlement of the trust). Often, this will not be an issue, however, such amendments are subject to the terms of the trust deed, and specialist advice may be required. Unless a discretionary trust deed complies with the above requirements, the trustee will not be eligible for the surcharge purchaser duty and surcharge land tax surcharge exemptions and refunds.

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