New Surcharges for Property Purchased through Trusts
Recent changes to state laws means stamp duty and land tax surcharges now apply to foreign persons buying residential land in three states of Australia. Rolled out from June 2016, the new legislation sees certain property acquisitions and holdings of discretionary trusts in Victoria, New South Wales (NSW) and Queensland (QLD) hit with the levy increase.
How much? Well, the increase varies from state to state, as does the nature of the property to which the surcharges apply. To be clear, the new law doesn’t affect all property purchases through discretionary trusts—it focuses on trusts that have ‘foreign persons’ as potential beneficiaries.
What is a ‘foreign person’?
As you can expect, this simple question doesn’t have an easy answer and the definition of a ‘foreign person’ is slightly different in each state.
In Victoria, the term ‘foreign purchaser’ is used. A foreign purchaser is defined as a trustee of a foreign trust under the Duties Act 2000 (Vic). And a foreign trust? It’s where a foreign corporation (incorporated outside of Australia) or a foreign natural person has more than 50% control in the trust estate. Note that if the class of beneficiaries is broad enough to include a foreign person (whether known to the trustee or not), the trustee will be deemed a foreign purchaser. Your discretionary trust may be deemed a ‘foreign person’ without you even realising it!
In NSW, the Duties Act 1997 (NSW) defines a ‘foreign person’ as a trustee of a trust in which a foreign person holds a substantial interest of 20% or more. However, the method and outcome is similar to that of Victoria. Therefore, any potential for a foreign person to be a beneficiary will classify the trustee as a foreign person.
In QLD, under the Duties Act 2001 (Qld), a ‘foreign person’ include trusts where 50% of the ‘trust interests’ are held by foreign persons. The trust interest is simply the proportion available to each taker in default. So, to classify foreign persons you’ll need to identify the default beneficiaries. If there are two takers in default and one is a foreign person, then the trust will also be a foreign person.
What are the stamp duty measures and when do they apply?
- In Victoria, the surcharge is now 7% and applies from 1 July 2016 to all foreign purchasers.
- In NSW, the surcharge is now 4% and applies from 21 June 2016 to all foreign persons.
- In QLD, the surcharge is now 3% and applies from 1 October 2016 to all foreign persons.
What are the land tax measures and when do they apply?
- In Victoria, the surcharge tax rate (on all land) is now 1.5% and applies from 1 January 2017 to ‘absentee persons’ under the Land Tax Act 2005 (Vic). This includes a trustee of an absentee trust. An absentee trust requires at least one absentee beneficiary to be a specified beneficiary of a discretionary trust.
An absentee person:
- is not an Australian citizen
- does not ordinarily reside in Australia
- is absent from Australia on 31 December of the relevant tax year; or
- is absent for more than six months of the relevant tax year.
An absentee corporation:
- is incorporated outside of Australia; or
- has an absentee person with a controlling interest.
- In NSW, the surcharge tax rate (on residential land only) is also 1.5% and applies from 31 December 2016 to the same foreign persons as the stamp duty surcharge.
- No land tax surcharge is to be applied in QLD. The sunny state yet again!
Concerned about your discretionary trust?
It’s important to be informed—but don’t fret! If you’re wondering whether your discretionary trust may be impacted by these broadly drafted provisions (and you hold or intend to acquire the relevant type of property in Victoria, NSW or QLD) we advise you to review your trust deeds. CCASA can help you with this. We can help you determine whether or not the class of beneficiaries within your trust is likely mean that your trust is treated as a ‘foreign person’ or whether there are amendments we can put in place to protect you from paying the levies unnecessarily.
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