You have until 31 December to change the terms of your trust to avoid surcharge land tax.
If you have a discretionary trust (commonly known as a family trust) which holds an “interest” in residential land, the trust will be hit with surcharge land tax if the terms of the trust don’t expressly and irrevocably exclude foreign persons from benefiting from the trust.
An “interest” in residential land means not only the trustee itself owning the residential land, but also more remote interests like the trustee owning units in a unit trust which owns residential land or owning shares in a company which then owns an interest in residential land.
The surcharge rate is an additional 0.75% for the 2017 land tax year and an additional 2% from the 2018 land tax year onward. This is on top of the normal rates of land tax and will be payable every year that the trust owns an interest in residential land.
Obviously, if the trust is used/to be used for the benefit of a foreign person, then the terms of the trust shouldn’t be varied. But you need to be aware of the implications of this.
If you don’t expect that there will be any foreign persons who will need to benefit from the trust, you should vary the terms of the trust as soon as possible (if this hasn’t already been done).
We have come across instances where it hasn’t been possible to vary the terms of the trust (this happens where the trust deed doesn’t give the necessary power to vary the deed). In these circumstances, we can work with your accountant to try to come up with recommendations as to the best course of action for you. This can take some time and, as the deadline is looming, it is important to get to work on this as a matter of urgency.
If your trust purchases residential land down the track, without this variation, surcharge stamp duty will also be payable.
When you are considering the land tax position of your family trust, you should be aware that the trust can’t receive the benefit of the land tax threshold – if your trust has incorrectly been receiving the benefit of this threshold, Revenue NSW can look back over the years it incorrectly received this benefit and hit you with a bill for the difference. It goes without saying this could be a hefty amount.
If you require any assistance in relation to this, or your trust generally, please feel free to contact our Estate Planning team.