Take action NOW to prevent NSW Land Tax Surcharge and Purchaser Duty Surcharge

All NSW Residential Land owning Discretionary Trusts and other entities need to take action by 31 December 2019.
A discretionary trust which owns ‘residential land’ in New South Wales either directly or via an ownership interest in a company or unit trust may trigger land tax and purchaser duty surcharges. Varying discretionary trust deeds by 31 December 2019 may enable trustees to escape the tax and duty surcharges otherwise applying back to 2016.

The NSW surcharges apply where a trustee of a discretionary trust is a “foreign person”. That will be the case where any potential beneficiary of a discretionary trust is a foreign person even if they have never received a trust distribution or they are not expressly named in the deed. A “foreign person” can be a foreign individual, company, trust or government. If any potential beneficiary is a foreign person, the surcharges applying are:

  • 8% purchaser duty surcharge – on residential land purchased from 21 June 2016, and
  • 2% land tax surcharge per annum on the unimproved value of residential land held at 31 December 2016, 2017 or 2018.

Until recently, trustees had an indefinite period in which to vary deeds to remove potential foreign person beneficiaries in order to escape the surcharges.  NSW Government has recently tabled a bill which requires the necessary deed variations to be undertaken by 31 December 2019 to prevent the surcharges applying retrospectively. 

NSW Residential Land owning Companies and Unit Trusts also need to take action by 31 December 2019.

The surcharges also apply where foreign persons own a substantial interest in a land owning company or unit trust. That can be direct ownership of shares or units.  Revenue NSW can also trace substantial interests held by foreign persons through multiple levels of interposed entities.  For example, the surcharges may apply to a residential land owning unit trust where 20% of its units are owned by an Australian corporation for whom a discretionary trust has a 20% shareholding, where that discretionary trust has a potential foreign person beneficiary.

As a matter of urgency, all NSW residential land owning company or unit trusts need to review their ownership structures to identify foreign persons, particularly upstream discretionary trusts with potential foreign person beneficiaries.  It may be a non-land owning upstream discretionary trust that needs its trust deed varied by 31 December 2019.

Mazars can facilitate a review of discretionary trust deeds and land owning structures to determine if deeds need to be amended by 31 December 2019.  For assistance please speak to your usual Mazars advisor or alternatively our tax specialists:

 

Brisbane – Jamie Towers

Melbourne – Michael Jones

Sydney – Stephen Baxter

+61 7 3218 3900

+61 3 9252 0800

+61 2 9922 1166

 

Published: 6/12/2019

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice. Content is accurate as at the date published.