Surcharge Land Tax and Discretionary Trusts in NSW

Surcharge Land Tax and Discretionary Trusts in NSW

Does your discretionary trust hold residential land in NSW?

The State Revenue Legislation Further Amendment Act 2020 (NSW) came into effect on 24 June 2020. The effect of the new legislation is to deem a discretionary trust a foreign person for the purposes of Surcharge Land Tax unless its trust deed specifically prevents (or was amended to prevent) foreign persons from being beneficiaries of the trust by 31 December 2020.

In NSW Surcharge Land Tax (currently 2%) is levied on residential land owned by a foreign person in addition to any other land tax it is already liable to pay.

Why are discretionary trusts considered to be foreign persons for land tax purposes? Because every beneficiary that can potentially benefit from the trust is deemed to have the maximum percentage interest in the income or assets of the trust that may potentially be distributed by the trustee to them. This covers all beneficiaries of the trust – not just those beneficiaries who are specifically named. Therefore, if any beneficiary is a foreign person, the trust will be considered foreign for land tax purposes. Depending on the definition of ‘beneficiary’ in your trust deed, this might include a British cousin, a company incorporated in Singapore that your uncle owns shares in or a foreign charity.

What can I do to prevent Surcharge Land Tax from applying to my trust?

If you failed to amend your discretionary trust by 31 December 2020, your trust may be assessed as a foreign trust and be liable for Surcharge Land Tax – a liability that would be applicable to both future and prior year land holdings.

Going forward, if you are planning to own or purchase residential land in NSW and you do not want to pay Surcharge Land Tax, you should check whether the terms of your discretionary trust deed exclude foreign beneficiaries in accordance with the requirement of the Act and if it does not, consider whether you should hold such property in a different trust that excludes foreign persons from being beneficiaries of the trust.

Call us on 1300 654 590 or email us if you are not sure whether your trust will be deemed to be a foreign beneficiary for Surcharge Land Tax purposes.

Recent Changes to Surcharge Duty

On 21 February 2023, Revenue NSW has confirmed that the imposition of Surcharge Land Tax is in conflict with an international agreement that was signed by the Australian government with:

  • New Zealand;
  • Finland;
  • Germany; and
  • South Africa.

Given the conflict, Revenue NSW has decided to waive Surcharge Land Tax for citizens of the above countries, as well as foreign corporations, trusts, and partnerships that have ties to these nations.

For those individuals who are citizens of these countries that have paid Surcharge Land Tax after 1 July 2021, you may be eligible for a refund. While Revenue NSW has indicated that they will try to identify those eligible for a refund, eligible taxpayers should still actively engage with Revenue NSW to ensure that their refund is processed.

Call us on 1300 654 590 or email us if you are not sure whether your trust will be deemed to be a foreign beneficiary for Surcharge Land Tax purposes.

The information contained in this post is current at the date of editing – 18 April 2023.

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