Is your Trust paying a Land Tax surcharge?

Changes to the NSW Land Tax Legislation – unintended consequence for all Trusts which own residential property

A new land tax duty surcharge applies to residential land owned by foreign persons. Discretionary Family or Hybrid Trusts are automatically caught by these new provisions irrespective of whether a foreign individual is associated with the trust. We understand that similar provisions have also been enacted in other states.

To be exempted from these provisions and to avoid paying additional land tax the Trust Deed of your Trust must be amended to prevent the trustee from distributing to beneficiaries that are foreign persons. This change to your Trust Deed will not prevent your Trust distributing to Australian Citizens that are not “non-residents” for tax purposes.

Avoid paying land tax surcharges under Ruling G010

The NSW Office of State Revenue has published a new Ruling G010 to explain the changes.  To protect your trust and the residential property in it from extra land tax, you must change your trust deed to irrevocably remove foreign persons as potential beneficiaries, while leaving  the remaining class of potential beneficiaries sufficiently  broad to distribute to those discretionary beneficiaries.

The amendments must be made before your trust acquires real estate in New South Wales. If your trust already owns real estate in New South Wales, the changes must be made before 31 December 2017 to avoid paying the land tax surcharge.

Your Trust already owns real estate in New South Wales – What to do to avoid a land tax or stamp duty surcharge?

If your trust owned real estate on 31 December 2016, you must take immediate action.  Your trust was required to tell the OSR about  any “foreign person” beneficiaries by 31 March 2017. If this was not done the trustee is in default and you must act now to tell the OSR about the “foreign person”.  The OSR will then issue a surcharge notice for any land tax assessed at 31 December 2016 and for any stamp duty on  real estate acquired since 21 June 2016.

What you should do NOW

You should immediately get advice and apply for an exemption from the surcharge. You will have to show that the trustee was  not involved in a tax avoidance scheme.. If the OSR grants the exemption, the trustee must amend the trust deed if it has not already done so.

OSR Ruling

http://www.revenue.nsw.gov.au/info/legislation/rulings/general/g010v2

OSR Further information

http://www.revenue.nsw.gov.au/taxes/land/faq

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Source: Written by Peter McNamara, Partner of Clark McNamara Lawyers, Sydney

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