If you own a Family Trust that owns residential land in NSW or intend to purchase residential land and/or premises using your Family Trust, please note that Revenue NSW considers a Family Trust to be automatically subject to the foreign person surcharge on stamp duty and Land Tax.
The surcharge for land tax is 2% above the usual charge of 1.6%.
The surcharge for a foreign Person purchasing land is 8% of the purchase value.
Land Tax is charged every year so it is a particularly penal and unfair provision. It takes the annual land tax charge to 3.6% per year. If you had land with a land value of the $400,000.00, your annual land tax bill would be $14,400.00!
Stamp duty on the purchase of a $400,000.00 property would increase from $13,432.00 to $ 45,432.00, a 32,000.00 penalty!.
Most Family Trusts deeds, have a very broad definition of a “beneficiary”. Revenue NSW has taken the view that if the definition in your Trust Deed could possibly permit a benefit to be paid to a foreign person (even if that has never occurred or is never likely to occur), it will deem the Trust to be automatically subject to foreign person surcharge on stamp duty and/or Land Tax.
You may or may have already received a letter from Revenue NSW advising that your Family Trust may be subject to the 2% land tax surcharge.
There is however a way to avoid the surcharges, provided you don’t have foreign persons as beneficiaries.
Most Family Trust Deeds permit the terms of the Trust Deed to be amended. The solution is to exclude foreign persons as potential beneficiaries of your Trust.
Each terms of each Discretionary Trust Deed are different and accordingly a thorough reading of the Trust needs to be undertaken to enable the amendments to be made to protect your interest.
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