The NSW State Government has recently introduced State Revenue Legislation Further Amendment Bill 2019 (Bill) into Parliament, which contains a number of provisions that could have a major impact on NSW property owners.
Currently, where a residential property in NSW is owned by a foreign person or foreign corporation, the owner is liable for an additional 8% surcharge purchaser duty and an additional 2% surcharge land tax. Until now this wasn’t a problem for most Australian citizens, however the new guidelines as to what counts as a foreign beneficiary contained in the Bill could change that.
The Bill stipulates that unless a trust deed contains a clause that specifically excludes the distribution of income to foreign beneficiaries, that trust will be treated as foreign for the purposes of the surcharges. Furthermore, these surcharges taxes apply retroactively at a rate of 0.75% for the 2017 land tax year, and 2% from the 2018 land tax year onwards.
In order to be exempted from the surcharges, you need to provide the appropriate documentation confirming the foreign status of your discretionary trust by 31 December 2019. Failing to do this could result in any landholdings in your discretionary trust being liable for the additional surcharge tax which could be significant.
If you have a discretionary trust which either currently holds, or you plan to acquire property with, then we recommend you come see us as soon as possible to take the following actions:
1. Review your trust deed to ensure the necessary exclusions clauses are contained within the deed;
2. If required, update your trust deed to include these exclusion clauses; and
3. Lodge a return along with a copy of your trust deed to the NSW Revenue office to confirm your foreign status.
Failing to meet the 31 December 2019 deadline could result in an immediate tax liability being created back to as early as 2017.