NSW LAND TAX UPDATE
If you purchased real property in NSW during the 2016 calendar year or rented out your former home you may need to register for NSW land tax.
You will also need to register for NSW land tax if you are a previously unregistered “foreign” person, or a company or a trust and own residential land in NSW as at 31 December 2016. Most discretionary trusts owning NSW residential property will be subject to the new land tax surcharge unless the Trust Deed is amended under the amnesty discussed later in this update.
Registration for NSW land tax is required by 31 March 2017.
If you are already registered for land tax you should receive your assessment notice shortly if you have not already done so.
Traditionally New South Wales land tax applies where:
- Real property is owned in New South Wales at midnight on 31 December 2016; and
- The Valuer General’s three year average valuation of the total NSW landholding interests which do not qualify for the principal place of residence exemption or other exemptions, is more than $549,000. Land tax does not apply to the value of improvements such as buildings. Grouping rules apply where related companies own land.
Where the $549,000 threshold is exceeded the land tax is $100 plus 1.6% of the excess over $549,000 up to $3,357,000. For more valuable holdings the land tax is $45,028 plus 2% of the excess over $3,357,000. Note that the $549,000 threshold does not apply to “special” trusts such as discretionary trusts.
This surcharge was introduced in the June 2016 NSW state budget as an additional tax on certain foreign persons owning residential land in NSW. It can apply to both investors and owner occupiers. It is in addition to the normal land tax and can apply to properties that are not otherwise subject to land tax, for example the NSW family home of a temporary visa holder.
Importantly, there is no threshold – the 0.75% surcharge applies from the first dollar of taxable value based on the three year average of unimproved land values determined by the Valuer-General.
For the purposes of the surcharge a “foreign person” is any entity other than:
- An Australian citizen;
- A New Zealand citizen who has been in Australia for 200 or more days in the 2016 calendar year; or
- A permanent visa holder who has been in Australia for 200 or more days in the 2016 calendar year
A foreign person includes a company or trust in which one or more foreign individuals have a direct or indirect substantial interest (see below).
Application to Discretionary Trusts
If your discretionary trust owns residential land in NSW it will be subject to the land tax surcharge on whole value of the land unless the trust deed specifically prevents the trustees from making any distributions of income or capital to foreign persons as defined above. The NSW Office of State Revenue has confirmed that a Trust Deed amendment is necessary - it is irrelevant that, in practice, distributions from the trust are limited to Australian citizens.
Where the surcharge applies to a discretionary trust it is payable by the trustee.
Limited Retrospective Amnesty to Modify Existing Discretionary Trust Deeds
The NSW Office of State Revenue has announced a limited amnesty to amend discretionary Trust Deeds. This will be backdated to allow amendments with effect from 21 June 2016. This means that discretionary trusts should not be liable to the surcharge on land owned at 31 December 2016 provided the trust deed is amended before 1 September 2017 and no distributions are made to foreign persons at 30 June 2017.
Please contact us if to discuss this possible amendment if you have a discretionary trust owning NSW residential land.
Application to Companies and Unit Trusts
The surcharge applies where NSW residential land is owned by a company or unit trust and a substantial interest (see below) is held by:
- An individual, other than an Australian citizen, who is not ordinarily resident in Australia
- A foreign corporation or a foreign government
- Two or more individuals other than Australian citizens, who are not ordinarily resident in Australia and hold an aggregate substantial interest of at least 40%
A substantial interest is an interest of at least 20% in a company or at least 20% of the income or capital of a trust.
The definition of "associate" is broad, it includes:
- Close relatives
- Entities that can be expected to act in accordance with your wishes
- Companies or trusts in which you hold a substantial interest
The shareholder in a company or unitholder in a unit trust is primarily liable for the land tax surcharge. If they default in payment the company or trust is liable.
4% STAMP DUTY SURCHARGE ON “FOREIGN” PURCHASES OF NSW RESIDENTIAL LAND
If you are planning to purchase NSW residential land in circumstances where you would be subject to the land tax surcharge if you held that land at midnight on 31 December 2017, you will be subject to the related 4% stamp duty surcharge on the purchase of NSW residential land by foreign persons as defined above. This was also introduced last year.
The duty must be paid within three months of exchange including off the plan purchases.
If you plan to purchase residential land in a discretionary trust you may need to amend the Trust Deed before exchange of the contract in order to preclude distributions to foreign persons.
Similar surcharges now apply in a number of other Australian states.