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Foreign purchaser duty may hit overseas-born trustees

foreign purchaser duty overseas-born trustees

SMSFs with overseas-born trustees may be charged foreign purchaser duty if they don’t hold a residency visa when acquiring assets.

Overseas-born members of an SMSF who do not have permanent Australian residency may be subject to foreign purchaser duty when acquiring property, an SMSF lawyer has claimed, pointing out people from New Zealand may be affected the most.

Speaking at a recent seminar in Sydney, DBA Lawyer’s Shaun Backhaus said the foreign purchaser duty provisions applied when a foreign person, corporation or trust acquired residential property and held an interest of 50 per cent or more, according to the rules in most states, or more than 20 per cent in New South Wales.

Backhaus said it was possible for an SMSF to be considered a foreign trust if more than half of its trustees were considered a ‘foreign natural person’ according to the definitions used by state revenue offices, and under the definition of what is an Australian superannuation fund under the Income Tax Assessment Act 1997 (ITAA).

“The ITAA said the definition of an Australian super fund is where the interests are held by Australian residents. If we are looking at whether the interest of members in a fund may be considered as ‘foreign’, if the fund members are foreign, then it could be a foreign trust,” he said.

“Advisers will probably deal with this where a person was not a resident any longer, such as a member who was a permanent resident but no longer has a visa.”

He said New Zealand citizens living in Australia could be affected by this application of the law as their visa to stay in Australia expires if they leave the country.

“The visa New Zealand citizens receive gives them freedom of movement, is issued as a special category, and is given at the border and is valid while in the country, but once they leave, the visa expires until they return and get another one,” he said.

He highlighted that any New Zealand citizen in Australian purchasing property in an SMSF may be considered a foreign purchaser if they were out of the country at the time of settlement.

“If a New Zealand citizen is not in the country on the day of settlement and rely on their visa instead, then they don’t meet the definition and will be seen as a foreign purchaser and required to pay the duty.”

Formal legal advice should be sought to determine any actual liability for the foreign purchaser duty tax in each state because there was not a consistent approach in use by the state revenue offices.

“I asked the various revenue offices whether foreign purchaser duty applied to SMSFs and none of them gave a formal response because no one is thinking about this issue.”

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