Recent changes to duty legislation New South Wales have meant that ‘Foreign Persons’ who purchase certain types of residential land in New South Wales, will attract a Foreign Duty Surcharge, by way of an imposed Land Tax Surcharge.
If you currently hold or intend to purchase land through your Family Trust, then we recommend you seek legal advice, as to whether your Trust Deed needs updating.
The nature and terms of family/discretionary trusts are such that usually, a beneficiary does not have a defined interest in the trust. However, for the purpose of applying the Foreign Duty Surcharge, the legislation in New South Wales has deemed each beneficiary in a discretionary trust to have a 100% beneficial interest in the trust fund. This means that if a Foreign Person (as defined) is not excluded as a beneficiary and from receiving a benefit from the trust, then the trust may be subject to the Land Tax Surcharge.
Each of the following is a Foreign Person for the purposes of the Land Tax Surcharge:
- An individual who is not an ordinary resident in Australia (other than an Australian Citizen);
- A corporation in which an individual ‘not an ordinary resident in Australia’, a Foreign Corporation or a Foreign Government holds a substantial interest;
- A corporation in which two or more persons, each of whom is an individual, not an ordinary resident, a Foreign Corporation or a Foreign Government, hold an aggregate substantial interest;
- A trustee of a trust in which an individual, not an ordinary resident in Australia, a Foreign Corporation or a Foreign Government holds a substantial interest;
- A trustee of a trust in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a Foreign Corporation or a Foreign Government, hold an aggregate substantial interest;
- A Foreign Government;
- A Foreign Government Investor;
- General partners in limited partnerships;
- Any other person who is a person within the meaning of the Foreign Acquisitions and Takeovers Regulation 2005.
General partners of limited partnerships
General partners of limited partnerships are foreign persons under Section 18 of the Foreign Acquisitions and Takeovers Regulation 2015 where:
- An individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds at least 20% in the limited partnership; or
- Two or more (each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government), hold an aggregate interest of at least 40% in the limited partnership.
When does a person hold a substantial interest in a corporation?
A person holds a substantial interest in a corporation, if that person holds, alone or with two or more associates, an interest of at least 20% in the corporation (definition of ‘Substantial Interest’ in Section 4 of the Foreign Acquisitions and Takeovers Act 1975(Cth)).
A person holds a substantial interest in a trust (including a unit trust) if the person, with any one or more associates, holds a beneficial interest in at least 20% of the income or property of the trust. A substantial interest may be held through an interest in other corporations or a Trust.
Those who could be affected should read our article on our website uploaded on 29 January 2017, titled ‘OSR Ruling Relating to Definition of a Foreign Person’.
If you would like further information on trusts, or the foreign land tax surcharge, contact Rockliffs Lawyers in Sydney.