Residential Property, Tax

Jurisdiction will set foreign purchaser tax position

Foreign purchaser duty SMSF

Advisers should pay attention to how the application of foreign purchaser duty to SMSFs differs between jurisdictions, an SMSF legal firm says.

Foreign purchaser duty surcharges may not apply consistently to SMSFs across all jurisdictions and advisers should note how the legislation differs between states in order to correctly assess the impact on funds, according to specialist legal firm DBA Lawyers.

DBA Lawyers director Daniel Butler and lawyer Shaun Backhaus said while the broadly accepted definition of a foreign trust was where one or more foreign individuals had a controlling level of interest in the trust, advisers should be wary of how the definition of ‘foreign individual’ differed between jurisdictions.

Butler and Backhaus noted the different treatment of this definition could affect how the number of beneficiaries of a trust was determined when imposing the surcharge.

They warned this was a particularly important factor when applying the surcharge to SMSFs.

“In the context of an SMSF, it is not immediately clear who a beneficiary is at all times. For example, the range of beneficiaries of an SMSF includes more than the members, however, the extent of the interests of beneficiaries is not always obvious,” they said in a blog post on the law firm’s website.

“Broadly, an SMSF may not fit into what would usually be considered a ‘fixed trust’ by revenue authorities.”

They also highlighted how the rate of the foreign purchaser duty surcharge differed between states, with most states applying a surcharge rate of 7 per cent or 8 per cent for trusts meeting a foreign interest threshold of at least 50 per cent.

“If an SMSF is a foreign trust, and it purchases relevant real property (usually residential property), it will be subject to the additional duty surcharge,” they noted.

“The law relating to this tax differs from jurisdiction to jurisdiction. However, we found that most jurisdictions followed a similar approach.”

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