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.

Proposed changes to GST on property transactions

Measures to strengthen compliance with the GST law in the property development sector have been introduced into parliament this week.

The Treasury Laws Amendment (2018 Measures No 1) Bill 2018 will amend several tax laws to require purchasers of new residential premises and new subdivisions of potential residential land to make a GST payment directly to the ATO as part of settlement from 1 July 2018.

This was announced in the 2017-18 Federal Budget, is designed to counter tax evasion where some developers collect GST from their customers but dissolve their company to avoid paying it to the ATO. Currently, developers may have up to three months to remit GST after the sale of newly constructed residential premises and new subdivisions, allowing dishonest developers to avoid their GST obligations.

The government claims that the cost impacts on purchasers using conveyancing services are expected to be minor, given this change leverages the existing disbursement process and the use of standard contracts.

CPA Australia understands and agrees with the intent of the Bill, though disagrees with the assumption that the change will have minimal impact on most purchasers.

The impact on the cash flow of builders could be quite significant

In its submission on the draft legislation, CPA Australia stated that it is the experience of its members that GST on property transactions can be complex, including calculating the GST payable, and that such transactions may be outside the skills of many BAS and tax agents, let alone conveyancers.

Property depreciation tax changes passed

As part of the 9th of May 2017 federal budget, the Australian Government proposed amendments to legislation relating to plant and equipment (division 40) deductions.
The proposed changes, outlined in Treasury Laws Amendment (Housing Tax Integrity) Bill 2017 , have now been legislated after being passed by the Senate on the 15th of November 2017.
This has resulted in a change to the Income Tax Assessment Act 1997 and denies property investors from claiming income tax deductions for the decline in value of ‘previously used’ depreciating assets (plant and equipment) within residential investment properties.
The government’s intention in making this legislation amendment was to deliver an integrity measure which addressed concerns that some plant and equipment assets were being depreciated by successive property investors in excess of their actual value.
These changes affect investors who purchase second-hand residential properties after 7:30pm on the 9th of May 2017 by limiting the depreciation they can claim on existing plant and equipment assets.
The following video has been prepared by BMT Quantity Surveyors to explain the changes.