If you own or are purchasing residential land in NSW and are deemed a ‘Foreign Person’, then Land Tax surcharges and Foreign Surcharge Duty will apply. However, things get a little more complex where you own land via a Discretionary Trust. The following article provides a brief outline and update on the area of ‘Foreign Person’ and Residential Land Ownership in NSW.
What are the ‘Foreign Person’ surcharges?
Where a ‘Foreign Person’ owns residential land in NSW they must pay a Land Tax Surcharge of 2% on the land value of all residential land owned at 31 December each year.
Where a ‘Foreign person’ purchases residential land, they must pay a foreign surcharge duty of 8% on the dutiable value of the land.
How is a ‘Foreign Person’ defined?
Basically, someone is defined as a ‘Foreign Person’ if they are NOT an Australian citizen OR they are NOT a Permanent resident of Australia who has been in the country for 200 days or more in the prior 12 months.
A ‘Foreign Person’ can be an individual, a Company, a Trustee of a Trust, a Unit Trust etc.
How is ‘Residential Land’ defined by Revenue NSW?
Residential land can include any of the following:
Parcel of Land: On which there are one or more dwellings, or on which there is a building under construction that, when completed, will constitute one or more dwellings.
Strata Lot: If it is lawfully occupied as a separate dwelling, or suitable for lawful occupation as a separate dwelling.
Utility Lot: If it’s use is restricted to the owner or occupier of a strata lot.
Land-use entitlement: If it gives the holder of the land-use entitlement to occupy a building, or part of a building, as a separate dwelling – e.g. company title and residential flats.
Parcel of vacant land: Zoned or otherwise designated for use for residential or principally for residential purposes.
When does the Surcharge/s apply?
Where residential property is owned or is to be purchased, the relevant ‘Foreign Person’ surcharges will apply as follows:
- Where an individual is deemed a ‘Foreign Person’
- Where a ‘Foreign Person’ holds a substantial interest in a company – 20% or more (this includes companies acting as Trustees of Trusts)
- Where a ‘Foreign Person’ holds a substantial interest in a Unit trust – 20% or more
What about Discretionary Trusts?
Discretionary trusts that own residential land are treated somewhat differently. Every beneficiary of a Discretionary Trust is treated as having a substantial interest in that trust. As Discretionary Trust deeds generally give the trustee wide powers to distribute income, the trustee of a Discretionary Trust is deemed to be a ‘Foreign Person’ if the terms of the trust don’t specifically prevent a ‘Foreign Person’ being a beneficiary.
To avoid the imposition of the ‘Foreign Person’ surcharges, it is important to amend the relevant deed to exclude a ‘Foreign Person’ from being a potential beneficiary of the trust. Please note that these amendments are irrevocable.
In addition, where a Discretionary Trust has an interest in an entity such as a Unit Trust or Company that owns Residential land, the relevant Discretionary Trust deed should also be amended to exclude a ‘Foreign Person’ from being a potential beneficiary.
These amendments must be executed prior to the 31 December, 2020 with the amended deeds preferably being supplied to Revenue NSW before this date in order to circumvent the request for a Land Tax Assessment Amendment.
For further information and advice, please call or email your regular DRB Group contact.