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Stamp duty and land tax surcharges Update

By Riley Jones

Many members would be aware of various States introducing stamp duty (and land tax) surcharges for foreigners acquiring land, including for some discretionary trusts where they have even one foreign (potential) beneficiary! NTAA Corporate has progressively introduced new discretionary trust deeds to exclude affected foreigners from being beneficiaries of those trusts, to ensure as far as possible that the surcharges will not inadvertently apply to the acquisition or holding of land by trusts in those affected States.

Recently, the ACT passed legislation to introduce a land tax surcharge on certain parcels of foreign-owned residential land in the ACT. Specifically, the Land Tax Amendment Act 2018 became law when it was ‘notified’ on 16 May 2018, with one of its measures being to introduce a foreign ownership land tax surcharge from 1 July 2018.

We have looked at the new law and, importantly, a discretionary trust will only be a ‘foreign trust’ for those purposes if (broadly) a foreign person is named in the trust deed who, under the terms of the trust, takes the capital of the trust estate due to the trustee exercising a power or discretion, or alternatively if they are a default beneficiary and can take the capital due to the discretion not being exercised (refer S.17C of the new law).

Therefore, it appears that this broadly means that, in terms of trusts with NTAA Corporate discretionary trust deeds, they should only be considered ‘foreign trusts’ if one or more of the named primary beneficiaries in the trust deed are ‘foreign persons’ (e.g., if they are not Australian citizens or residents). However, such trusts should not be caught simply because an unnamed relative of one of the beneficiaries is a ‘foreigner’ (as may be the case with other such foreign surcharges in other States).

Consequently, as for South Australia, we have not modified our discretionary trust deeds due to this new ACT law (as our regular discertionary trust deeds should cater for most ‘regular’ acquisitions of land in the ACT by Australian-based trusts). However, we will monitor this situation in case there are further developments regarding the interpretation of this new law.

In other foreign surcharge news, it should be noted that the Tasmanian Budget, handed down on 14 June 2018, confirmed that the Tasmanian Government will (among other changes) “implement a Foreign Investor Duty Surcharge of an additional 3% of the dutiable value for all purchases of residential property by foreign residents and an additional 0.5% of the dutiable value for all purchases of primary production land by foreign residents”. However, it is not clear how this will impact on trusts. In addition, the Western Australian Government has also announced that it will be increasing the rate of its ‘Foreign Buyers Surcharge’ to 7% (from the previously announced 4%), which is intended to apply to “all purchases of residential property by foreign individuals and entities from January 1, 2019” (again, it is not yet clear how that legislation will apply to trusts).