Foreign Person Land Ownership & Trust Amendments in NSW

‘Foreign Person’ Definition

Generally, someone is recognised as a foreign person if they are not:

• an Australian citizen, or
• a permanent resident (or New Zealand citizen) who has been in Australia during 200 or more days of the previous 12-months.

A foreign person covers more than a natural person. It can be:

• an individual
• a company
• a trustee of a trust
• a beneficiary of a land tax fixed trust
• a government or government investor
• a partner in a limited partnership

Foreign Person Surcharges

If a foreign person owns residential land in NSW, they will pay a:

1. duty surcharge of 8% on the dutiable value of land when they buy land and
2. land tax surcharge of 2% of the land tax value of all residential land owned as at 31 December each year.

Surcharges & Trusts

In regards to foreign person surcharges, some highlighted points include that:

• a company or the trustee of a trust where a foreign person holds a ‘substantial interest’ (being a 20% interest) is also a foreign person.
• for a discretionary trust, every beneficiary is treated as having a ‘substantial interest’ in the trust. Therefore to prevent the foreign person surcharges being imposed, the trust deeds for discretionary trusts that own land need to exclude foreign persons from benefiting.
• the company or unit trust will also be a foreign person where a discretionary trust has an interest of 20% or more in a company or unit trust (and foreign persons have not been excluded from benefiting from the discretionary trust).

Trust Deed Amendments

Where land is held by a company or unit trust, Revenue NSW have recently been investigating whether the shareholders or unit holders of the company or unit trust may cause it to be a foreign person, including where the company or unit trust is owned by a discretionary trust without a foreign person exclusion in the trust deed.

If you are making amendments to trust deeds to exclude foreign persons from discretionary trusts, these should be completed before 31 December 2020 to avoid the land tax surcharge being imposed for the 2021 land tax year.  In addition, if the company or unit trust intends to make a dutiable transaction, the amendments to the trust deed for the discretionary trust should be made before this transaction takes place.

For guidance on how to make trust deed amendments or to review your land ownership and any surcharges before 31 December, our team at BLG Business Advisers are here to help so please talk with us today.

*We thank Brown Wright Stein Lawyers who we referenced for this article. This information is relevant at the time of publishing and is subject to change*