The NSW Government has introduced a land tax surcharge on “foreign persons” who own residential land in NSW. The definition of “foreign person” has cast a wide net and caught trusts and companies unexpectedly.
The Office of State Revenue has clarified in its very recent Ruling that, if your family trust owns residential property in NSW and your pool of beneficiaries could include a foreign person, then the trust could be liable to pay the land tax surcharge on top of its usual land tax bill. An extra 0.75%.
But that’s not all. The NSW Government has also introduced a stamp duty surcharge on acquisitions of residential land in NSW by foreign persons, meaning an extra 4% on the ordinary stamp duty rate.
For the purposes of this surcharge, a foreign person is not an Australian citizen nor a non-Australian citizen who is ordinarily resident in Australia. However, in this changing global world, many potential beneficiaries move or live overseas for at least part of their lives.
Example – The Smith family has set up a family trust, which owns residential property in NSW. The beneficiaries include the parents, children, grandchildren and their spouses. Grandchild1 spends a gap year overseas and marries a Pom. His wife becomes a potential beneficiary of the trust. Therefore, the trust may have a foreign person as a beneficiary and will be liable to the surcharge.
It does not matter that the trustee has no intention of passing any benefit to the foreign person. When it comes to discretionary trusts, whether family trusts or a testamentary trust (created under a Will), it only matters that a foreign person is a potential beneficiary.
You could avoid the surcharge by amending the trust deed to deem foreign persons ineligible beneficiaries. This “status” could change if the foreign person becomes an ordinary resident of Australia. The Office of State Revenue has just announced that it will allow a 6 month window to complete this.
Contact our Estate Planning & Trust Team today on 8987 0000 to find out if anyone in your family is a “foreign person” and how to amend your Trust Deed to avoid these surcharges.