On 22 October 2019, the NSW Government introduced to Parliament the State Revenue Legislation Further Amendment Bill 2019 (NSW). The Bill, which is currently before Parliament undergoing second reading debate, proposes to make a number of amendments to the Duties Act 1997 (NSW), the Land Tax Act 1956 (NSW) and the Land Tax Management Act 1956 (NSW).
Changes to the Foreign Purchaser Duty and Foreign Person Land Tax Surcharges
Importantly, the Bill introduces transitional clauses which provide specific exemptions to foreign purchaser duty and foreign person land tax duty surcharges for trusts holding residential land in NSW. The proposed amendments provide that:
- if the trustee of a discretionary trust is liable as a foreign trustee for surcharge purchaser duty on a transfer of dutiable property that occurs before the commencement of s 104JA, or after that commencement but before midnight on 31 December 2019, the trustee will be retrospectively relieved from that surcharge duty if the terms of the trust deed are amended, in accordance with s 104JA, before midnight on 31 December 2019; and
- if the trustee of a discretionary trust is liable as a foreign person for surcharge land tax in respect of the 2017, 2018 or 2019 land tax years, being the only taxable years since the commencement of the surcharge land tax provisions, the trustee will be retrospectively relieved from that surcharge land tax if the terms of the trust deed are amended, in accordance with s 5D, before midnight on 31 December 2019.
In addition, if a trustee has already paid the foreign purchaser duty surcharge or foreign person land tax surcharge, the trustee will be entitled to a refund if the terms of the trust deed have been amended, before midnight on 31 December 2019, so that the trust prevents a foreign person from being a beneficiary.
Victorian and NSW legislation – the laws are different
The foreign trust surcharge provisions are different under Victorian and NSW legislation. The key Victorian operational provisions are:
- for the purposes of the foreign purchaser duty surcharge, a discretionary trust will be deemed a foreign trust if a foreign natural person, foreign corporation or a trustee of a foreign trust has a substantial interest in the trust estate. Under the Act, a substantial interest is defined as having a beneficial interest of more than 50% of the capital of the estate of the trust. If no interest is specified for a beneficiary, each beneficiary in the class is taken to have a 100% interest in the trust; and
- for the purposes of the foreign person land tax surcharge, a discretionary trust will be deemed a foreign trust if a foreign natural person, foreign corporation or trustee of a foreign trust is specifically named as a beneficiary of the trust.
In NSW, the liability for foreign purchaser duty surcharge arises where any beneficiary is entitled to 20% of the capital or income of the trust. If no interest is specified, the beneficiaries interest is deemed to be 100%. These provisions are broader in operation than the Victoria provisions.
The liability in NSW for foreign person land tax surcharge has the same test. The proposed provisions are significantly broader than the Victorian provisions.
As a consequence, some Victorian-based landholders may incorrectly assume that compliance with the Victorian provisions will mean compliance in NSW. This is an incorrect assumption.
Land Tax Amnesty
Additionally, Revenue NSW is offering all landholders with NSW land holdings a three-month amnesty period to 31 January 2020 to disclose any errors in their land tax reporting without incurring any penalties or interest.
Next Steps: What should you do?
- If you are a landholder in NSW, you should review your land tax reporting compliance to determine whether to use the NSW land tax amnesty.
- if your trust holds NSW residential landholdings, or
- has purchased NSW residential landholdings in a trust at any time on and from 31 December 2016,
- If your trust is a foreign trust, you should then determine whether to amend the trust deed to exclude foreign persons as beneficiaries prior to midnight on 31 December 2019 and:
- seek retrospective relief for the foreign purchaser duty surcharge and foreign person land tax surcharge;
- apply for a refund for any foreign purchaser duty surcharge and foreign person land tax surcharge paid; or
- to the extent GST was also paid on the stamp duty inclusive purchase price, determine whether a GST refund on the refunded foreign purchaser duty surcharge amount is available.
Importantly, you should seek legal and tax advice in relation to the above, as there may be consequential CGT or other implications resulting from any actions taken in response to the matters raised above.
You must act quickly given:
- the 31 December 2019 deadline for trust deed amendment for foreign purchaser duty surcharge and foreign person land tax surcharge; and
- the 31 January 2020 deadline for disclosing any errors in your NSW land tax reporting.
15th November 2019
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.