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NSW, Victorian and Queensland Land Tax Surcharges

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Urgent Attention to Property Owners holding property in a trust

Victoria, NSW and Queensland have all recently introduced foreign investor duty and land tax surcharges which will have significant implication on property investors  that own property in trusts.

New legislation in NSW, Victoria and Queensland will result in land tax surcharges for all non-fixed trusts owning properties in those States unless a specific amendment to the trust deed is undertaken.

A fixed or Unit  trust may  also be liable to the land tax surcharges where a “foreign person” is a unit holder of the trust. This can include where a discretionary or non-fixed trust holds units in the fixed trust.

As the definition of a ‘foreign person’ is drafted widely, many existing discretionary,  hybrid and Property Investors Trust deeds will be affected by the surcharge. The issue arises from the rules that determine whether a foreign beneficiary holds a ‘substantial interest’ in the trust.

As an example in relation to NSW, section 18(3) FATA provides that in working out the extent of a beneficiary’s interest in a discretionary trust, each beneficiary is taken to hold the maximum percentage of income or property of the trust which the trustee may distribute to them.

Effectively this means that each discretionary beneficiary is deemed to hold 100 per cent of the beneficial interest in the trust and hence hold a substantial interest for the purposes of the ‘foreign person’ definition. Even more concerning is then the ‘associates’ test that exasperates the inclusion of a ‘foreign person’.

Even though we don’t believe that the intention of the changes in legislation were introduced to catch those persons with no or unknown foreign beneficiaries this is not clear.   

Therefore, depending on the beneficiary classes in your  trust deeds, it may be prudent to review the deed and where necessary amend the deed so as to confine the discretionary beneficiary class to persons who would not cause the trust to be a foreign person for surcharge purposes.

This amendment should be undertaken before 31 December 2017.

The surcharge is significant and is:

State Surcharge
NSW 2%
Victoria 1.5%
Queensland 1.5%

The surcharge is in addition to normal land tax payable.

Please contact your local office or client manager to discuss your personal situation and whether you would like to amend your deeds.

If you would like to know more about taxes, you can click here to know more about Chan & Naylor services. You can leave your details here and we can schedule you for a free consultation. We’ll contact you to explain more.

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Chan & Naylor Group has nationwide offices in Brisbane and Capalaba in Queensland, Melbourne and Moonee Ponds in Victoria, East Perth in Western Australia, and South West Sydney, Parramatta, Pymble, North Sydney, and Sydney in New South Wales.

Disclaimer

6 responses to “NSW, Victorian and Queensland Land Tax Surcharges”

  1. Peter Kingston says:

    What if owner is a dual citizen. ie UK and Australian. Quite common as you would know. Does that still get caught in the new tax?

    • Chan & Naylor says:

      Hi Peter
      If the trust deed does not exclude distributions to foreign beneficiaries this could be subject to the surcharge , if unsure and to be 100% safe we recommend that you amend the deeds before 31/12/17 please contact your local office and client manager and they can arrange same.

  2. Sharon Hawkins says:

    Is this article referring to the Absentee Owner Surcharge or is it something different?

  3. Gena says:

    Hi Peter,
    My trusts have myself and my children as beneficiaries in the schedule.
    We are all Australian citizens. Do my trusts have to specifically state that beneficiaries will not be foreign citizens?

    • Chan & Naylor says:

      Hi Gena,

      You need to get the deed amended to exclude the possibility of ever being able to distribute to a foreign beneficiary. You can email us if you have more queries.

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