If you are a foreign person who owns residential land in NSW, you must pay a surcharge of 0.75 per cent for the 2017 land tax year and two per cent from the 2018 land tax year onwards.
A foreign person can be:
- an individual
- a corporation
- a trustee of a trust
- a beneficiary of a land tax fixed trust
- a government
- a government investor
- a partner in a limited partnership.
Why Does It Matter & Will You Be Caught?
If you have a trust that owns residential land in NSW, you or your advisors will need to check the trust deed.
The issue is according to Ruling G 010v2, discretionary trust deeds often give the trustee wide powers to distribute income and/or property, such as to family or other relatives of the settlor and in many cases to charities. If any one of the potential beneficiaries is a foreign person, the trustee may be liable for surcharge.
Consequently, a discretionary trust may be liable for the foreign person surcharges even though none of the beneficiaries who actually receive or are likely to receive distributions of income or capital are foreign persons.
What If You Do Nothing?
You are required to pay the surcharge on the taxable value of all residential land that you own as at 31 December each year. A principal place of residence exemption may apply to you for 2018.
Figure 1: Don't be caught out by an additional 2% land tax just because you think it won't apply to you as you aren't a foreign person.
The surcharge is in addition to any land tax you may already pay. You may be required to pay the surcharge even if you do not pay land tax.
The surcharge is assessed in relation to each parcel of residential land and is proportional to ownership. There are no joint assessments and secondary deductions do not apply. There is no tax-free threshold applicable to the surcharge.
Therefore, if you have a trust that is either a unitholder or shareholder of a company that owns residential land or if it owns residential land outright, you may be up for an additional 2% land tax from 1 January 2019. So for example, if the taxable value of residential land is say $600,000 then you may be charged an additional $12,000 in land tax.
- you have a company owned by a trust/discretionary / non fixed trust/a beneficiary of a land tax fixed trust; and
- it owns NSW residential land; and
- any potential beneficiary of the trust is a foreign resident,
You may want to consider changing the trust deed of the trust to exclude foreign residents from being a potential beneficiary.
The change to the trust deed will need to be signed before 1 January 2019.
Act now! Consult your professional advisors before 1 January 2019 to see if you will be affected by the 2% land tax surcharge.
If you would like further assistance with this, please do not hesitate to contact Scolari Comerford.