New South Wales
In New South Wales, from the start of the 2017 land tax year a surcharge land tax at the rate of 0.75% will be applied to acquisitions of residential land by a ‘foreign person’. This surcharge land tax will be payable in addition to any existing land tax liability. There is no tax-free threshold and no principal place of residence exemption for this surcharge land tax.
Similarly, an additional duty surcharge of 4% is also payable by a ‘foreign person’ who acquires residential land in New South Wales from the 21 June 2016. This duty surcharge is payable in addition to any other duty that may be imposed.
A trustee of a discretionary trust will be considered a ‘foreign person’ for the purposes of these additional taxes if any beneficiary of that trust is a non-resident, whether they are specifically named in the deed or come within a certain class of beneficiaries. It does not matter whether the foreign person is a default capital beneficiary or not. It is also irrelevant whether or not they have ever received any distributions from the trust. The implications of this are far reaching as many discretionary trust deeds have a broad class of beneficiaries which may very well include a foreign person.
An additional duty surcharge of 3% also applies to acquisitions of residential land in Queensland by a foreign person on or after 1 October 2016. Like in New South Wales, this duty surcharge is payable in addition to any other duty that may be imposed.
The way that discretionary trusts are treated for the purposes of this additional tax in Queensland is somewhat more relaxed than in New South Wales. Only a foreign person who is a default capital beneficiary will be considered to have an interest in the trust.
The Office of State Revenue has stated that whether a discretionary trust with a foreign person as a default capital beneficiary is a foreign trust or not will depend on the facts and circumstances of each matter. The Commissioner will consider the likelihood of a distribution being made to the foreign person, taking into account the terms of the trust deed itself.
What does this mean for you?
If you have a discretionary trust that holds residential land in New South Wales or Queensland, or if you are considering acquiring land in a trust in the future, we recommend that a thorough review of the terms of your trust deed be undertaken in light of these additional surcharge taxes.
It may be possible to vary the terms of the trust deed to specifically exclude any foreign residents as beneficiaries. It is important that this work be undertaken by a suitably experienced Lawyer to avoid triggering any adverse tax or stamp duty consequences.
If you wish to undertake a review of your trust deed or would like any further information, please contact a member of our experienced Wills, Trusts and Estate Planning Department.