Revenue NSW (Formerly known as the Office of State Revenue) considers Family Trusts to be subject to the Foreign Persons Surcharge on stamp duty and Land Tax for any New South Wales residential property owned through the Trust, including Trusts that are based outside of NSW.
Revenue NSW has confirmed that they automatically apply the 2% foreign person land tax surcharge on properties where the title indicates that it is owned through a Family Trust.
Revenue NSW gives trustees 6 months (from the assessment date) to update their Trust Deed to remove foreign persons as beneficiaries. After the deed is updated, the trustee can then apply for the surcharge to be refunded.
In short, Family Trusts may have to pay the tax first and then apply for a refund (after they have updated their Deed), regardless of whether there is any history of the trust distributing to a foreign person.
The situation is slightly different for properties in other states held by Family Trusts. Victoria, Queensland and South Australia also impose foreign person surcharges on Stamp Duty and/or Land Tax, with Western Australia due to follow in 2019. Each state has its own legislation which deals with how these surcharges apply to Family Trusts and the legislation in each state differs.
Recent changes to duty legislation in New South Wales, Victoria and Queensland has meant that “foreign persons” who purchase certain types of residential land in each of these states, will attract a foreign duty surcharge as determined in each of those states relevant Acts. Legislation in New South Wales and Victoria also imposes a land tax surcharge.
Most family/discretionary trusts have wide beneficiary classes. As a result, it is probable that many family trusts have a foreign person as a beneficiary. For example, the primary beneficiary’s grandchild or parents might live overseas
The nature and terms of a family/discretionary trust is such that usually a beneficiary does not have a defined interest in the trust. However, for the purposes of applying the foreign duty surcharge, the legislation in New South Wales and Victoria 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 from receiving a benefit from the trust, then the trust may be subjected to the higher duty rates. The position is different in Queensland.
If you are going to purchase land in a trust, you should ensure that you trust deed specifically excludes “foreign persons” from being beneficiaries. Only very recent trust deeds are likely to be structured thus way
The Assistant Treasurer, The Hon. Bill Shorten, has announced a public consultation process as the first step towards updating the trust income tax provisions in Division 6 of Pt III of the Income Tax Assessment Act 1936 and rewriting them into the Income Tax Assessment Act 1997. Mr Shorten said an initial consultation paper will be developed for release in the first part of 2011.
He said any options will seek to ensure that net taxable income of a trust is assessed primarily to beneficiaries. Trustees will continue to be assessed only to the extent that amounts of net taxable income are not otherwise assessable to beneficiaries. Importantly, Mr Shorten said the options will not include the taxation of trusts as companies, which would be a major departure from the current law.
Mr Shorten has also announced that the Australian Federal Government will introduce amendments before Thursday 30 June, so that beneficiaries of farming trusts can continue to use the primary producer averaging and farm management deposit provisions when such trusts incur tax losses.