Foreign Surcharge Land Tax and the impact on Discretionary Trusts
On 22 October 2019, the State Revenue Legislation Further Amendment Bill 2019 was introduced into NSW Parliament, the effect of which is that unless people irrevocably amend their discretionary trust deeds to exclude foreign persons by 31 December 2019, they will be liable to pay foreign surcharge land tax (2% flat rate) on any residential land in NSW owned by the trust. This will be assessed back to the 2017 land tax year, as well as the trust being liable to pay foreign surcharge land tax for the 2020 and later land tax years on any such residential land.
This tax will apply regardless of whether or not there is an actual foreign person as a beneficiary, and will capture all discretionary trusts that do not specifically exclude foreign persons as beneficiaries.
If you have a discretionary trust which owns or may one day own residential land, the trust may need to be amended to avoid unintentionally paying foreign surcharge land tax.
Even if the trust does not currently own residential land, it is important to amend the trust deed prior to the trust purchasing residential land, because if the trust deed does not exclude foreign persons, any acquisition of residential land will also attract foreign surcharge stamp duty (8% flat rate in addition to usual stamp duty).
Please contact Kate May or Kristan Somerville of our office 02 6933 6900 for further information.