Foreign owner surcharges and discretionary trusts
Foreign owner surcharges and discretionary trusts
A number of states have introduced foreign owner surcharges on duty and/or land tax for acquisitions and ownership of certain types of land by ‘foreign persons’. New South Wales and Victoria both have land tax surcharges, while Queensland, New South Wales and Victoria all charge a surcharge on duty. Foreign owner surcharges can mean additional duty of up to 8% of the purchase price (on top of the usual duty rates) and additional land tax of up to 2%.
Each state differs in what constitutes a ‘foreign person’ and trustees of discretionary trusts have to be particularly careful that their deeds are properly drafted (and, if necessary, amended) if they are buying or already own land in these states.
Buying or holding residential land in New South Wales in particular can create unattractive revenue issues for trustees of discretionary trusts, regardless of whether there is an ‘obvious’ foreign link or not.
The Duties Act 1997 (NSW) and the Land Tax Act 1956 (NSW) apply the same definition of ‘foreign person’ as appears in the Foreign Acquisitions and Takeovers Act (Cth). Broadly speaking, the trustee of a discretionary trust will be regarded as a foreign person if any of the beneficiaries are individuals not ordinarily resident in Australia, foreign corporations or a foreign government.
Most standard discretionary trust deeds include widely drawn beneficiaries, and the Chief Commissioner of Revenue in New South Wales considers a trust to be a foreign person if ‘any of the primary or general beneficiaries of the trust are/or may be a foreign person’.
Earlier this year Revenue New South Wales issued Revenue Ruling No. G010 which confirmed the Chief Commissioner would administer the surcharge legislation on the basis that a discretion existed to exempt the trustee of a discretionary trust from the surcharge if the Chief Commissioner was satisfied the trustee was not involved in a scheme or arrangement for the evasion or avoidance of these surcharges, and that the discretion would be granted conditional on the trust deed being amended to exclude foreign persons within 6 months of the grant of exemption. This indicates that amendments made to trust deeds after 6 months may result in the amendments falling afoul of the anti-avoidance provisions of the legislation, imposing further risk to trustees.
Foreign owner surcharges are critical considerations for trustees owning or proposing to purchase residential land, and trustees should contact their lawyer to obtain advice about this issue.
Extreme care must be taken when amending a trust deed in order to avoid the risk of resettlement and the adverse duty and capital gains tax implications of the same.
Ballantyne Law Group is able to assist in reviewing, advising on an attending to amendments of this nature.
Please contact us on 07 5606 7332 to discuss this matter.
