It is helpful to first discuss the rules imposing additional duty for acquisitions for residential land by foreign purchasers, both as a refresher and to provide context to the new land tax surcharge rules: both rules draw upon similar concepts and definitions.
The legislation in New South Wales, Victoria and Queensland all differ slightly and different terminology is used, so for simplicity we will refer to them all as the 'foreign duty surcharge' rules.
The foreign duty surcharge rules were introduced in 2016 (or in Victoria's case, the rate of foreign duty surcharge was increased in 2016). Below are the effective dates for the new foreign duty surcharge rules and the rates of additional duty payable.
Note that in Victoria the foreign duty surcharge is calculated on the value of the transaction exclusive of any concessions (for example, the off-the-plan duty concession) which may otherwise be available.
Broadly, the foreign duty surcharge rules are designed to apply to land used for residential purposes. However, each State differs slightly in terminology and what types of land are captured in the rules.
In New South Wales, foreign purchaser duty is imposed on acquisitions of 'residential land'. Residential land includes the following (and does not include land used for primary production):
In Victoria, foreign purchaser additional duty is imposed on acquisitions of 'residential property'. Residential property includes:
Further, the foreign duty surcharge may also be payable in Victoria where land which was not 'residential property' at the time of transfer subsequently becomes 'residential property' (for example, because of a change to the use of the land or a change of intention by the purchaser).
In Queensland, the foreign duty surcharge is imposed on land that is solely or primarily used for 'residential purposes', where particular conditions are met. These include:
In New South Wales, the definition of foreign person for foreign duty surcharge purposes is a modified definition of 'foreign person' from the Foreign Acquisitions and Takeovers Act 1975. This includes:
In Victoria, a foreign purchaser includes a foreign natural person, a foreign corporation or a trustee of a foreign trust, as described below:
A 'controlling interest' may also exist where a person has the capacity to influence the outcome of decisions about a corporation's financial and operating policies, or the administration of a trust.
In Queensland, a foreign acquirer includes a foreign individual, a foreign corporation or the trustee of a foreign trust.
Discretionary trusts typically allow for distributions to a broad range of beneficiaries, but the beneficiaries are not usually considered to have an "interest" in the trust or the trust assets (merely the right to be considered as a potential recipient of the income and capital of the trust at the discretion of the trustee).
In New South Wales, each beneficiary of a discretionary trust is deemed to have the maximum percentage interest in the income or property of the trust. This is also the case in Victoria. Accordingly, a discretionary trust where even a single potential beneficiary of the trust is a foreign individual, foreign corporation or foreign trust (and remember that the class of potential beneficiaries can often be very broad) is considered a foreign trust for these purposes.
In Queensland, a discretionary trust may also be a foreign trust if the default beneficiary specified in the trust deed is a foreign individual. This is a different approach, in that the question is whether a foreign person is named in the deed, rather than whether a foreign person is a potential beneficiary.
Cleardocs now has available a Discretionary Trust — excluded beneficiaries document package that allows you to create all the documents you need to set up a discretionary trust that specifically excludes certain classes of beneficiaries. You have the option to create:
Effective from 1 January 2017, an additional land tax surcharge is payable by foreign owners:
This additional cost to foreign owners of land follows the measures introduced throughout 2016 by the New South Wales, Victorian and Queensland State Governments to impose additional duty for acquisitions of residential land by foreign purchasers.
Which landholders are affected?
In New South Wales, the surcharge land tax affects foreign persons, which has the same definition as that used for the foreign duty surcharge.
In Victoria, the surcharge land tax unhelpfully uses a different definition from its stamp duty laws, namely that of 'absentee persons' whom own land. This can include:
What to do going forward
As can be seen, these new rules are complex and there are differences depending on whether the land is situated in New South Wales, Victoria or Queensland.
Any foreign entities or Australian entities with ultimate foreign ownership should check the jurisdiction specific requirements to determine if foreign duty surcharge and surcharge land tax may be payable before entering into any transactions involving real property, or if they currently hold real property.
Further, such entities acquiring real property may also need to seek approval from FIRB under the Foreign Acquisitions and Takeovers Act 1975 and should seek independent legal advice regarding this.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Revenue Practice Group.
You can read earlier ClearLaw articles on a range of matters.
You can read about the introduction of the foreign duty surcharge here.
Leigh is a partner in the Maddocks Tax & Revenue team.
Leigh regularly provides advice on:
His advice covers both direct and indirect tax considerations.
Leigh advises Australian and multinational companies, high net worth individuals, accountants and financial advisers on all areas of taxation law.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.