Australian Expats With Discretionary Trusts To Feel Pain From NSW Land Tax Changes – The NSW government has recently introduced the State Revenue Legislation Further Amendment Bill 2019.
This Bill is hugely concerning for Australian expats that own property through discretionary (family) trusts in NSW and will be retrospective in nature.
Australian expats who currently pay land tax each year or are looking to purchase a new residential property through the trust could incur additional surcharges.
The new legislation proposed by the NSW government will have the effect of deeming the vast majority of trustees of family trusts ‘Foreign Trustees’ unless the beneficiaries under the trust deed are limited to specifically exclude foreign persons.
It is important that amendments need to be lodged prior to 31 December 2019 and with accounting firms shutting down over the Christmas break it is important to discuss with your expat tax advisor in a timely manner.
The Bill was first introduced into NSW parliament on October 22, under the amendment a trustee of a discretionary trust is deemed to be a ‘foreign person’ in ANY circumstances where the terms of the trusts do not specifically prevent a foreign person from being a beneficiary.
Currently, most trustees of discretionary trusts will fall under this definition. Therefore, there has been a huge increase in amended trust deeds in the last 2 months to account for this proposed Bill.
This will have a great impact on the amount of tax paid by a discretionary trust owning residential property in NSW, as foreign persons are required to pay surcharge purchaser duty of 8% and surcharge land tax of 2%.
As an example, if the taxable value of residential land in NSW held by the discretionary trust is $1,000,000 and the trustee is deemed a foreign trustee, the proposed surcharge would add an additional $20,000 to the existing annual land tax liability.
On a new purchase, the trustee would incur an additional $80,000 on the acquisition.
An exemption from the above surcharge stamp duty or land tax, for foreign trustees, will only be given if the terms of the trust deed prevent a foreign person from being a beneficiary of the trust, as well as the clause preventing a foreign person becoming a beneficiary cannot be amended to allow a foreign person to be a beneficiary at a later time.
It is crucial that the clause in respect of being irrevocable.
It is not definitive how the new provisions will operate, but the transitional provisions contain language that indicates they will retrospectively apply to acquisitions that have already occurred and land tax in respect of previous years since the surcharges were introduced.
This could result in additional surcharges being required retrospectively or the benefit of a refund from the NSW government.
If you are an Australian expat with a discretionary trust and are unsure of whether this is relevant to you, it is important you contact your tax advisor to see whether any trust deed amendments need to be made.