There have been considerable changes recently in Australia’s approach to levying tax on foreign nationals who own Australian real estate. In particular, various state governments have introduced land tax and stamp duty surcharges for foreigners who own Australian residential land.
The purpose of this blog post is to provide general information as to the issues of how family trusts are treated.
Generally, the issue with trusts is that it needs to be determined whether a trust would be treated as foreign trust for land tax and stamp duty purposes.
If your family trust is deemed to be foreign trust, then you will be required to pay land tax surcharges if your family trust owns land in New South Wales, Victoria or Queensland.
Whether a trust is a foreign trust
The rules that determine whether a discretionary trust is considered a foreign trust for duty and land tax purposes differs from state to state. The appropriate rules to apply will depend on the location of the property of the trust (i.e. if the trust buys property in NSW it will be subject to the NSW definition).
Essentially issues will arise in New South Wales if your Trust has any potential beneficiary who is not an Australian citizen or who is not permanently residing in Australia. Note that the question of whether a foreign person has in fact benefited is not relevant.
The law in Queensland and Victoria is less onerous because surcharges will generally only apply in those states if any of the default beneficiaries (i.e name beneficiaries) are foreigners.
We recommend that you consider the position of your trust and consider who the beneficiaries of your trusts may need to be moving forward.
If you do not intend to benefit foreign persons, then your trust deed may be able to be amended to avoid future land tax and stamp duty surcharges being applied.
For trusts that own residential land in NSW we also recommend that you read this link so that you are aware of the approach that the New South Wales Office of State Revenue is taking in relation to this issue.
If you have any questions, please do not hesitate to contact us.