November 15, 2016

If you are a residential land owner or have landholding in trusts, then this tip is for you.

To avoid a new NSW land tax surcharge you may need to consider – before 31 December 2016 – who has an interest in residential property that you or your related entities own.

NSW has introduced a surcharge on land tax and stamp duty on residential land holdings where foreign persons or entities are involved. Importantly, you may not be aware of the involvement of foreign persons or entities as it may arise as a result of a broad definition of beneficiary in your trust.

This affects any residential land owner that is linked – albeit subtly – to a foreign person or entity. In particular, we are concerned about landholdings in trusts that have broad definitions of beneficiaries (that is, most family trusts).

If this describes you, you may incur higher land tax assessments. For example, your annual land tax liability may increase by as much as $7,500 for land valued at $1,000,000. The surcharge will apply when you have a potential interest that is not necessarily an actual interest. This means you may have never have received a trust distribution nor be likely to in the future.

You need to act now

You will need to take action now as land tax is assessed each year on 31 December and the new surcharge will be considered for the first time on 31 December 2016. To avoid the surcharge you will need to demonstrate that no foreign person or entity has a direct or indirect interest in the property, even when that interest is merely a potential interest.

Land owners, specifically those with residential property in trusts, need to consider whether the definition of beneficiaries in their deed potentially includes foreign persons and if it does, consider an amendment to their deed.

If you think you may be affected by the surcharge and would like further advice, please call BrentnallsNSW on (02) 8252 5555.