To Fix or Not to Fix
Discover the key differences between “fixed”, “non-fixed”, and “special” unit trusts and their impact on tax and land tax benefits. […]
Emily Pritchard, Legal Services Director, current as of: 1 October 2020.
UPDATE – 21 June, 2022: The NSW foreign owner surcharge land tax rate will increase from 2% to 4%, commencing from the 2023 land tax year.
Late last year a bill was introduced into the NSW parliament proposing changes to the imposition of surcharge land tax and purchaser duty in NSW. That bill, known as the State Revenue Further Amendment Act 2020 (NSW) (“the Act”), is now law.
The Act provides an exemption from surcharge purchaser duty and land tax in respect of NSW residential property held in a discretionary trust if the trust prevents a foreign person from being a beneficiary of the trust by 31 December 2020. It also allows for refunds of already paid surcharge land tax and purchaser duty for previous years – but again, only if the trust prevents a foreign person from being a beneficiary of the trust by 31 December 2020.
Under the Duties Act 1997 (NSW) and Land Tax Act 1956 (NSW) a trustee of a discretionary trust that is a foreign person or foreign trustee will be liable to pay surcharge purchaser duty (currently an additional 8%) and surcharge land tax (currently an additional 2%) on the acquisition and holding of NSW residential property by the trust for which it is trustee..
These pieces of legislation have been amended by the Act so that the trustee of a discretionary trust is taken to be a foreign person or foreign trustee unless the trust prevents a foreign person from being a beneficiary of the trust. To do this, the following requirements must be satisfied:
Important considerations for indirect interestsIt is important to remember that the scope for foreign surcharges is wider than just discretionary trusts owning NSW residential property. Discretionary trusts holding indirect interests in NSW property should also be considered. If a property is owned by a unit trust and a discretionary trust (that does not exclude foreign persons) owns units in that unit trust, the discretionary trust could cause the unit trust to be treated as foreign and assessed at surcharge rates. The same could be the case if a discretionary trust owns shares in a company that holds property. Trust deeds for discretionary trusts that hold units or shares in entities that own property should also be reviewed and amended where appropriate. |
31 December 2020 is the critical deadline for amendments.
Discretionary trust deeds that comply with the above requirements before 31 December 2020 will be exempt from surcharge purchaser duty and surcharge land tax payable in respect of interests in residential property acquired or held by the trust.
Additionally:
We recommend an immediate review of all trust deeds for discretionary trusts that hold, or intend to hold, a direct or indirect interest in residential property in NSW.
We’ve prepared many of these amendments in the past, and most fall into a price range of $410-$600 ex GST. You can order a Trust Deed Amendment for this purpose here or contact us to discuss further.
We’ve developed some resources to help you:
Acis does not provide advice in relation to taxation, duty, the Corporations Act, trust law, company law or any other matter. We do not purport to provide advice nor should you construe anything in any correspondence with us, or material provided by us, as advice of any kind. |
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