Foreign home buyers and investors in NSW have faced a number of specific tax measures over recent years. While NSW has long been an appealing place to invest in property, it is also one of the most heavily taxed, with the highest rates of land tax and duty for foreign persons with property interests.
This makes it all the more important to be informed about managing your stamp duty and land tax payments, especially if you are involved in a trust.
Premium Stamp Duty for Foreign Buyers
Non-residents in Australia are liable to pay an additional stamp duty surcharge when they purchase residential property in NSW. This surcharge purchaser duty has been raised to 8% since June 2016.
Unless you are an Australian citizen, the only way foreign property buyers can be exempt from this stamp duty payment is if you are considered an ‘ordinarily resident’. This means that even if you are an overseas citizen, you’ve lived in Australia for at least 200 days within 12 months before the purchase date. The days you enter and exit Australia count towards the 200 days total.
Foreign Property Owners Hit with Additional Land Tax
For a foreign person, on top of paying this stamp duty surcharge on the purchase of your home, you will also be hit with an additional land tax surcharge as a property owner in NSW. This land tax surcharge imposed on foreign persons who own residential land in NSW has been raised to 2%. No tax-free threshold or principal place of residence exemption applies when the surcharge is applicable.
The term “residential property” is fairly broad. It can cover land that is currently not suitable for residential purposes but will be rezoned or developed for such purposes in the future. Even if you don’t intend to rezone or develop property for residential purposes, the surcharges can cover land that is capable of being used solely or primarily for residential purposes.
Amending Trusts Deeds to Avoid Additional Tax Costs
Paying an additional 8% stamp duty on the purchase price and 2% land tax on taxable value of the property is a significant extra cost. Many people from overseas look to buy property in NSW using trusts, and these too can be impacted. However, amending your entity structure can help you reduce or avoid the payment of these hefty stamp duty and land tax surcharges.
For example, if you are the potential beneficiary of a discretionary trust, then this trust will be considered a ‘foreign person’. Should it be used to purchase property it will face the additional 8% and 2% surcharge payments. For trusts that own residential land, if a foreign person is a potential beneficiary of the trust, this will mean the trust is itself a “foreign person”. This is because a discretionary beneficiary is deemed to have the 100% percentage interest in the trust, making the trustee liable for the foreign buyer surcharges, even if the trustee has no history of distributing to a foreign person and no intention to do so.
It is up to you to demonstrate that your trust should be exempt from these extra taxes. To do so, you will need to amend your deed. This must be done to in a manner that shows that the trustee is not involved in a scheme or arrangement for the evasion or avoidance of these taxes.
You can save significant costs if you vary your trust deed in an appropriate way so as to exclude foreign persons. Calibre Business Advisory has years of experience in monitoring the property tax landscape with a keen eye for the impact on foreign buyers and owners. Our experts can efficiently review your trust deed and entity structure, and help you vary it so that you are not hit with unnecessary taxes.
Please note that the due date to make amendments to the trust deeds which was originally 31 December 2019, has been further extended, however the extension date is yet to be confirmed at this stage.
Calibre Business Advisory invests more time than most firms into finding solutions for our clients. Contact our business advisors and tax accountants to discover new options for your business in Australia and beyond.
Important Disclaimer: Readers should not act solely on the basis of the material on this page. Items herein are general comments only and do not constitute or convey advice. Legislation and proposals of legislation are also subject to constant change. We therefore recommend that formal advice be sought before acting in any of the areas. This news article is issued as a guide to the readers. Calibre Business Advisory Pty Ltd and its associated entities disclaims any losses that may be incurred as a result of the reader undertaking any action based on this article.