If you hold residential property in NSW in a Trust, then you need to have a Trust Deed Update completed before 31 December 2020 or risk paying extra in land tax surcharge.
In NSW, Surcharge land tax applies to foreign persons who are owners of residential land. The law has been in place for several years.
Where residential land is owned by a discretionary trust, the trustee will be liable for the surcharge land tax each year if there is no provision in the trust deed, by 31 December 2020, to provide that:No potential beneficiary of the trust is a foreign person; andThe terms of the trust must not be capable of amendment in a manner that result in a foreign person being a potential beneficiary.In addition any named foreign person in the trust deed must be removed as beneficiary or if even if you don’t intend to have a foreign person in your trust. YOUR DEED MUST EXCLUDE THEM.
This requirement applies even if the trust has no apparent foreign beneficiary or potential foreign beneficiary. This is due to the fact that a “potential beneficiary” is not limited to the beneficiaries who are named in the trust deed.
The surcharge amount is 2% of the unimproved value of the residential land. It is in addition to annual land tax liability.
Who is a foreign person?
I think it’s easier to explain who is NOT a foreign person. According to the NSW Duties Act 1997 a foreign person is NOT:an Australian citizen, regardless of whether they live in Australia or elsewhere.An individual who is ordinarily resident in Australia, that meanshas actually been in Australia for 200 or more days in the period of 12 months immediately preceding that time; andThere is no limitation as to time they can stay in Australia as imposed by law.A New Zealand citizen who holds a special category visa, within the meaning of section 32 of the Migration Act 1958.A company beneficiary of a trust may be a foreign person if a shareholder of the company is a foreign person and has a substantial interest.
You buy a property for $1million in NSW
Without the Deed Amendment, a surcharge on the purchase of 8% is payable, so an extra $80,000 in duty
Ongoing surcharge of 2% per annum. So an extra $20,000 duty cost per year.
If you already own the property and your deed has not been updated, then the extra $20,000 Duty surcharge per annum payable.
If your trust owns property, or may purchase property in NSW in the future, you should review the terms of your trust deed.
You may need to amend the trust deed to avoid being liable for foreign person surcharge.
Butlers Accountants in conjunction with Nautilus Law are working together to ensure all clients affected by this change will have deeds amended.
To proceed with a deed amendment through Nautilus Lawyers at a cost of $695 per deed, please click here.
As always, if you have any questions about this or any other matter, please do not hesitate to contact our office on 5536 2288 or by email firstname.lastname@example.org.