Trustees and advisers need to be prepared for the proposed changes to the New South Wales duty and land tax surcharge in order to avoid incurring unnecessary surcharge duty or land tax liabilities, a specialist legal firm has said.
DBA Lawyers director Daniel Butler and lawyer Shaun Backhaus said the State Revenue Legislation Further Amendment Bill 2019 (NSW), containing amendments relating to the surcharge provisions of the Duties Act 1997 (NSW), Land Tax Act 1956 (NSW) and Land Tax Management Act 1956 (NSW), was likely to affect discretionary trusts holding residential property in NSW even though the bill had yet to be passed into law.
“As land tax is calculated on land held as at midnight on 31 December each year, these proposed changes are expected to have an impact on discretionary trusts holding relevant property at that time despite the changes not yet being law,” Butler and Backhaus said in a blog post on the DBA Lawyers website.
They pointed out the changes might have a “retrospective effect” and said trustees and advisers had not been given enough time to manage the impact of the changes.
“In light of the usual end-of-year work requirements and delays and the fact that the law has not yet passed, we hope that the NSW government deals with such trusts fairly and provides more time for trustees to make any necessary changes,” they said.
Highlighting the amendments contained in the bill, they added: “These provisions impose a surcharge duty or land tax on ‘foreign persons’ and ‘foreign trustees’ that acquire residential-related property or residential land respectively.
“If passed, [it] will provide that a trustee of a discretionary trust is taken to be a foreign trustee if the terms of the trust do not prevent a foreign person from ever being or becoming a beneficiary. Such exclusionary provisions must be irrevocable.”
While it was unclear how the new provisions would operate, they noted the language contained in the transitional provisions suggested they would apply to property acquisitions that had already occurred.
“Failing to take timely action could result in the surcharge duty and/or land tax being applied to a trust for previous acquisitions and land tax years,” they said.
“It is important that any trustee of a discretionary trust that holds property in NSW considers the application of these amendments and whether it should vary the terms of the trust to fall within the terms of these new provisions.”
In August, Butler and Backhaus said foreign purchaser duty surcharges may not apply consistently to SMSFs across all jurisdictions and recommended advisers note how the legislation differed between states in order to correctly assess the impact on funds.
