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Land and Duty Tax is changing in Tasmania! What do you need to know?

The Tasmanian Government is introducing amendments to the Land Tax Act 2000 and Duties Act 2001, to impose a foreign investor land tax surcharge and clarify the scope and operation of the foreign investor duty surcharge.

The proposed changes to the Duties Act 2001 will finally provide guidance to clarify when a SMSF will be treated as a foreign trust. The amendments to the Land Tax Act 2000 will introduce a foreign investor land tax surcharge of 2% to supplement the existing foreign investor duty surcharge.

 

Maddocks Lawyers

Amendments to the Tasmanian land tax provisions

The introduction of the Land Tax Amendment (Foreign Investors) Bill 2022 will amend the Tasmanian land tax provisions to implement a foreign investor land tax surcharge. The Commissioner will have discretion to make determinations regarding a person’s status or the status of the land.

From 1 July 2022, the foreign investor land tax surcharge will apply at a rate of 2% on the assessed value of the land. This is in line with other states that have implemented a similar surcharge. The surcharge will apply to any interest in residential land that is:

  • acquired by a foreign person on or after 1 July 2022;
  • owned by a foreign company or trust that becomes foreign on or after 1 July 2022; or
  • acquired by a foreign person prior to 1 July 2022, where that person acquires a further interest in the same land after 1 July 2022.

The terms ‘foreign person’, ‘foreign natural person’, ‘foreign trust’, ‘foreign trustee’, and ‘foreign corporation’ will have the same meaning for the purposes of foreign investor land tax surcharge as they do for the foreign investor duty surcharge.

Importantly, the foreign investor land tax surcharge will not apply to the principal residence of a foreign person or to commercial residential properties (such as hotels, boarding houses, housing provided by or on behalf of educational institutions, residential care facilities and retirement villages).

There will however be relief from the foreign investor land tax surcharge for Tasmanian-based foreign developers, to support the timely supply of affordable housing in Tasmania.

In order to prevent the unintended imposition of the surcharge, non-foreign discretionary trust deeds can be amended within a 6 month period after each assessment. We recommend that customers with discretionary trusts that hold Tasmania property review the terms of their trust deed and consider if any amendments are necessary.

Amendments to the Tasmanian duty provisions

The Duties Amendment Bill 2022 (Tas) has been introduced in response to industry stakeholders suggesting there is uncertainty surrounding the treatment of SMSFs and testamentary trusts for the purposes of the foreign investor duty surcharge.

The amendments will apply retrospectively from 1 July 2018 and clarify that members of a SMSF have a beneficial interest in the assets of the fund for the purposes of the foreign investor duty surcharge. SMSFs will be a foreign trust where members who are foreign persons have a ‘substantial interest’ (50% or more). Each member’s balance will be taken as their interest, i.e. what the member would be entitled to on a transfer of the member’s membership interest to another SMSF.

Beneficiaries of testamentary estates will also have a beneficial interest in the assets of the trust for the purposes of the foreign investor duty surcharge. Testamentary trusts will be a foreign trust where a foreign person has a substantial interest (50% or more), calculated as the amount the beneficiary would be entitled to if the estate was fully administered.

The amendments also clarify that:

  • commercial residential properties are not subject to the foreign investor duty surcharge;
  • taxpayers can obtain a reassessment of duty on excluded commercial residential property within 12 months after the dutiable transaction;
  • Tasmanian based foreign developers that build 50 residential dwellings in Tasmania within 12 months can apply for relief from the foreign investor duty surcharge; and
  • non-interest based financing arrangements property will not be subject to double duty.

The amendments will remove the current ambiguity surrounding SMSFs and ensure the application of the foreign investor duty surcharge is clear.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Revenue Practice Group.

More Cleardocs information on related topics

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Lawyer in Profile

Daniel Hui
Daniel Hui
Senior Associate
PH: 61 3 9258 3563

Daniel is a Senior Associate in the Maddocks Tax & Revenue team.

Daniel advises extensively in the following areas:

  • structuring of businesses and transactions;
  • mergers and acquisitions;
  • corporate reorganisations;
  • sale of businesses; and
  • joint ventures and property developments.

His advice covers both direct and indirect tax considerations.

Prior to joining Maddocks, Daniel worked at a Big Four Chartered Accounting Firm focusing on tax consulting for mergers and acquisitions.