Foreign Duty and Land Tax Surcharges

[Sladen Legal discretionary trust order form and price list are available on the Sladen Store page]

Victoria first introduced foreign duty and land tax (absentee owner) surcharges on the acquisition of residential lands by foreign purchasers. Since then, other States and Territories have also jumped on the band wagon to introduce similar foreign surcharge provisions in each of their own legislations with slight differences within each jurisdiction.

We note that the legislation surrounding this area is complicated and cannot be easily summarised. The information contained in this article is only a summary and does not cover each individual’s circumstance.

As a general indication, duty (including foreign duty surcharges) applies to the direct and indirect acquisitions of property. Examples of indirect acquisitions of property include acquiring interests in land holding entities (including companies, unit trusts and partnerships).

The following tables briefly summarizes the different types of foreign surcharges and the types of underlying property interests captured in each State as at 1 July 2019.

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Looking through to determine a foreign purchaser

Where acquisitions are undertaken by a land or property holding entity with layers of underlying ownership, there is an added complexity to the provisions which are not covered here. In summary, the different provisions across all State and Territories provide for an ability to ‘look through’ the underlying ownership of a land holder to ascertain if the entity is a foreign purchaser.

We further note that for land tax purposes, the Victorian absentee owner definition for land tax purposes is broader than the equivalent ‘foreign purchaser’ definition for duty purposes.

What does this mean for taxpayers?

The foreign or absentee surcharge regimes in different States increases the complexity and onus on all taxpayers to comply with the ever-increasing taxation requirements in Australia. Due to the specific nuances in each State’s legislation, some taxpayers may already be exposed to surcharge liabilities without their or their advisors’ knowledge. Given the revenue authorities growing access to data, technology and data matching capabilities, we only anticipate investigations on known and unknown tax breaches to increase over time.

A common example would be a family discretionary trust, in which the family involved has a foreign relative. Typical discretionary trust deeds are broadly drafted to include a broad class of general beneficiaries (including extended family members) and powers of the trustee to distribute capital to any beneficiary. Such broadly drafted discretionary trust deeds are likely to have unintentionally brought in the foreign relatives as beneficiaries and may have “tainted” the family trust as being a foreign or absentee trust in some jurisdictions.

It is our recommendation that proper care be taken to review:

  1. Each taxpayer’s land or property holding vehicle (especially trusts and corporate entities with any underlying foreign ownership).

  2. If any taxpayer is unnecessarily paying the surcharge due to the land or property potentially falling out of the ‘residential property’ classifications.

  3. If any taxpayer may be entitled to any applicable treasurer’s discretionary relief, specific exclusions or refunds.

How Sladen Legal can assist

The legislative provisions in each State and Territory around foreign or absentee surcharges are increasingly complex and can be confusing for clients, tax advisors and accountants to navigate.

Our specialist State Taxes Team can assist in consulting and conducting a review of each taxpayer’s individual circumstance to ensure that our clients are compliant, have limited tax exposures or are not unnecessarily exposed to additional liabilities. From a review, we can make specific recommendations in accordance with each individual circumstance of the possible applications and avenues that may be available.

Trustees who wish to avoid the unintended application of such regimes can also order a Sladen Legal discretionary trust on our Sladen Store page. Sladen Legal’s discretionary trust deeds are formulated so that Trustees can order specific discretionary trust deeds with non-foreign trust elections for specific States.