Surcharge Land Tax and Duty – Trusts
Stamp Duty Surcharge
The 2016 NSW Budget introduced a surcharge purchaser duty (stamp duty) on the purchase of residential real estate by foreign persons from 21 June 2016. The surcharge is in addition to the stamp duty payable on the purchase of residential property. As a result of the 2017 Budget, the stamp duty surcharge has been increased from 4% to 8% for agreements that were entered into on or after 1 July 2017. The surcharge land tax rate will increase from 0.75 per cent to 2 per cent from the 2018 financial year.
Further, a foreign person is no longer entitled to the 12 month deferral for the payment of stamp duty for off-the-plan purchases of residential property.
For the stamp duty and land tax surcharge purpose, a trust will be deemed as a foreign person and liable for the surcharges if any of the following apply:
- the trustee of a trust in which an individual was not ordinarily resident in Australia;
- the trustee of a trust in which 2 or more persons, each of whom is an individual not ordinarily resident in Australia;
- a foreign corporation or a foreign government holds a substantial interest;
- a foreign corporation or a foreign government, holds an aggregate substantial interest;
A beneficiary holds a substantial interest in a trust if the beneficiary, with any one or more associates, holds a beneficial interest in at least 20% of the income or property of the trust. For a discretionary trust, each beneficiary to whom the trustee has discretion to distribute the income or property, is deemed to have the maximum percentage interest in the income or property that the trustee may exercise a discretion to distribute to them. In other words, if any beneficiary who is a foreign person holds at least 20% interest in a fixed trust, or being a beneficiary who is a foreign person in a discretionary trust, the trustee will be deemed to be a foreign person who will be potentially liable for stamp duty purchaser surcharge and land tax surcharge
Discretionary trust deeds often give the trustee powers to distribute income and/or capital, such as to family members, their relatives and associates, or even in many cases to charities. If any one of the potential beneficiaries is a foreign person, the trustee may be liable for one of these surcharges. Consequently, a discretionary trust may be liable for the surcharges even though none of the foreign beneficiaries actually receive or are likely to receive distributions of income or capital.
Revenue Ruling G 010 issued on 1 March 2017 allows the Chief Commissioner of State Revenue to exercise a discretion to grant an exemption to the trustee of a discretionary trust from stamp duty surcharge/or land tax surcharge, on the condition that the trust deeds must be amended within 6 months of the grant of the exemption to exclude foreign persons from benefiting from the trust. Briefly speaking, should the trust deed contain named beneficiaries who are foreign persons, such beneficiaries must be removed from the trust deed as beneficiaries. It is not sufficient that named beneficiaries are merely prevented from receiving distributions, such as through a general clause excluding foreign persons from being beneficiaries. Any amendments to the trust deed must also be irrevocable.
In granting the exemption, the Chief Commissioner must be satisfied that that the trustee is not involved in a scheme or arrangement for the evasion or avoidance of these taxes. If the trust deed is not amended within the required timeframe, the exemption will be rescinded with retrospective effect.
If you need help in amending your trust deed or understanding the above, please contact one of our tax lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry.