Last year, the New South Wales Government introduced surcharge land tax and stamp duty upon land purchases and land holdings by foreign persons. The surcharges are payable in addition to land tax and stamp duty normally payable and they are significant –
- The land tax surcharge is 0.75% for the 2017 year increasing to 2% for 2018 onwards; and
- The stamp duty surcharge from 1 July 2017 is a massive 8%.
Both surcharges relate to residential land only and were intended to put a brake on the level of foreign investment which was seen as driving escalating home prices particularly in the Sydney market.
The legislation to implement these changes coupled with the interpretation adopted by Revenue NSW (the new name for the former Office of State Revenue) has had some unexpected consequences resulting in potential liabilities for taxpayers who certainly wouldn’t consider themselves to be foreign persons.
It is particularly important that anyone who holds land in or proposes to purchase land in a discretionary trust, check to see whether they are potentially caught by these surcharges and take remedial action where appropriate.
Most discretionary trusts give the trustee a very wide power to distribute income or capital to potential beneficiaries and the beneficiary class is usually quite expansive. The interpretation adopted by Revenue NSW is to the effect that a discretionary trust will be liable for the surcharges even though none of the beneficiaries who actually receive or are likely to receive distributions of income or capital are foreign persons. Essentially, if there is a theoretical possibility that a foreign person could be a beneficiary, then the surcharges will apply.
Depending upon the trust deed concerned, it may be a relatively simple matter to amend the trust to remove the prospect of surcharges applying.
As land tax is assessed on the basis of landholdings as at 31 December each year, it is important that trust deeds be reviewed prior to that time.
At Everingham Solomons we have the experience and expertise to assist you with this issue because Helping You is Our Business.
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