NSW Land Tax Assessment includes Foreign Person Surcharge when property owned by Family Trust

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.

Stamp duty surcharge risk for trusts

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


Sham contracting findings released

The Fair Work Ombudsman  has released the findings of our audit into sham contracting in the cleaning services, hair and beauty and call centre industries.

Sham contracting occurs when an employer attempts to disguise an employment relationship as an independent contracting relationship, thereby avoiding obligatory rates of pay and other entitlements. This gives the employer an unfair competitive advantage.

The operational intervention began in April in response to intelligence from various sources and concerns raised by key stakeholders, including employee and employer groups and members of parliament.

The report states that a number of trading enterprises engaged contractors who should more properly have been classified as employees.

While Fair Work inspectors found that most of these arrangements were not deliberate, they did identify a number of employers whom they believe knowingly or recklessly misrepresented the employment relationship to their workers as one of independent contracting.

Legal action is being considered in some instances.

The Fair Work Ombudsman found misclassification of employees in each of the three industries that were investigated, but does not believe the problem is confined to these industries alone. 

Misclassification can lead to a contravention of the National Employment Standards (NES), minimum wage orders and terms of a Modern Award or Enterprise Agreement.

It can also result in contraventions of employer obligations to provide employee records and pay slips and may expose employers to back-payment of outstanding entitlements.

The report calls for employers to exercise a greater degree of care over their contracted labour arrangements.

A number of employers had received advice from accountants on how to structure their operations. It appeared the legality or appropriateness of the arrangements under relevant workplace laws was often not considered.